SPI Country Report - Philippines

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Private Sector Provision of Water and Sanitation Services in Rural Areas and Small Towns: The Role of the Public Sector

Country Report: Philippines

March 2016

http://www.wsp.org/


Contents

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Contents

Abbreviations and acronyms v

Executive Summary ix

1 Introduction 1

1.1 Overview of the Study 1

1.2 Objective of this Country Report 2

1.3 Structure of this Country Report 2

2 Country Background 3

2.1 Population, economic and administration profile 3

2.2 Water supply and sanitation profile 6

2.3 Public Private Partnership profile 21

3 Urban Development and WSS Provisions 26

3.1 Dynamics of the urban hierarchy 26

3.2 Public service provisions 32

3.3 Water supply and sanitation service provision 33

4 Experience with Domestic Private Service Providers 36

4.1 Overview of DPSP experience 36

4.2 Performance of DPSPs 42

4.3 Key achievements and success with DPSP 45

4.4 Key constraints and challenges 48

5 Conclusions and Lessons Learnt 50

5.1 Summary conclusion 50

5.2 Good practices in encouraging DPSP 51

5.3 Areas to be improved 51

A1 List of Key Stakeholders Consulted 54


Tables and figures

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Tables and figures

Tables

Table 1 Definition of Local Government Units (LGUs) 5

Table 2 Definition of water supply service levels in the Philippines 7

Table 3 Summary of institutions performing executive functions 15

Table 4 Summary of institutions performing regulatory functions 18

Table 5 Comparing the solicited and unsolicited processes 22

Table 6 Summary of PPP legal framework 23

Table 7 Classes of municipalities based on income 27

Table 8 Public service provision responsibilities 32

Table 9 Summary of selected existing water supply PPPs 42

Table 10 Performance of SIG Construction under the DBL Contract for Santa Cruz 43

Table 11 Bid Security requirements as per BOT Law 49

Table 12 Summary of discussions with stakeholders in the Philippines 54

Figures

Figure 1 Summary of study objective, activities and deliverables 1

Figure 2 The Philippines urban and rural population 3

Figure 3 Access to improved water supply and sanitation 6

Figure 4 Access to different levels of water supply services 8

Figure 5 Access to different types of sanitation services 9

Figure 6 Summary of the legal framework for water supply and sanitation sector 11

Figure 7 Institutional arrangement of the water supply and sanitation sector 14

Figure 8 Population density in the Philippines (2009) 30

Figure 9 Summary of the performance of Metro Manila concessionaires 44

Boxes

Box 1: Decentralisation of water supply and sanitation service provision 9

Box 2: Non PPP Government Procurement Process 24

Box 3: Private firms’ view on small towns 28


Tables and figures

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Box 4 Impact of remittance to small town economies 31

Box 5 Molobolo Rural Welfare and Services Association – Municipality of Tuburan 34

Box 6 Municipality of Borbon 34

Box 7 Metro Manila Water Supply and Sewerage Concessions 37

Box 8 Balibago Waterworks System Inc (BWSI) – Memorandum of Agreement 38

Box 9 Bohol Water Utilities Inc (BWUI) – Joint Venture Company in Bohol 39

Box 10 SIG Construction – Design Build Lease Contract in Santa Cruz 40

Box 11 Financial Support and Incentives for PPP Projects 47


Abbreviations and acronyms

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ADB Asian Development Bank

ADG Assistant Director General NEDA

APIS Annual Poverty Indicators Survey

ATSP Accredited Technical Service Providers

BEM Business Efficiency Measures

BLT Build-Lease and Transfer

BOO Build-Operate and Own

BOT Build Operate Transfer

BP Batas Pambansa – National Law – Philippines

BT Build and Transfer

BTO Build-Transfer and Operate

BUB Bottom-up Budgeting

BWSA Barangay Water and Sanitation Association

BWSI Balibago Waterworks System Inc

BWUI Bohol Water Utilities Inc

CA Concession Arrangement

CAO Contract-Add and Operate

CAPEX Capital Expenditure

CAU Contract Administration Unit

CBO Community - Based Organizations

CCC Conditional Certificate of Conformance

CCT Conditional Cash Transfer of the DSWD

CPC Certificate of Public Convenience

CPCN Certificate of Public Convenience and Necessity

CSO Civil Society Organization

DA Department of Agriculture

DAR Department of Agrarian Reform

DBF Design Build Finance

DBL Design Build Lease

DBP Development Bank of the Philippines

DECs Department of Education and Culture

DED German Development Service

DENR Department of Environment and Natural Resources

DILG Department of Interior and Local Government

DoF Department of Finance



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DOLE Department of Labour and Employment

DOT Develop-Operate and Transfer

DPSP Domestic Private Sector Participation

DPWH Department of Public Works and Highways

EOI Expression of Interest

ESWIF2 Expanded Small Water Utilities Improvement and Financing Technical Assistance Phase 2

FS Feasibility Study

GAA General Appropriations Act

GDP Gross Domestic Product

GFI Government Financing Institution

GIS Geographic Information System

GIZ German Federal Enterprise for International Cooperation

GOCC Government Owned and Controlled Corporation

GPOBA Global Partnership for Output Based Aid

GPRA Government Procurement Reform Act (Republic Act 9184)

GTZ German Society for Technical Cooperation

ICT Information communication technology

IMF International Monetary Fund

IRA Internal Revenue Allotment

IRR Implementing Rules and Regulation

JICA Japan International Cooperation Agency

JV Joint Venture Partnership

KFI Key Financial Indicator

KPI Key Performance Indicator

LGC Local Government Code of 1991 (Republic Act 7160)

LGU Local Government Unit

LWUA Local Water Utilities Administration

MDG Millennium Development Goals

MM Metropolitan Manila

MPDC Municipal Planning and Development Coordinator

MRWSA Molobolo Rural Welfare & Service Association

MWCI Manila Water Company, Inc

MWSI Maynilad Water Services, Inc.

MWSS Metropolitan Waterworks and Sewerage Systems (Republic Act 6234)

MWSS-RO Metropolitan Waterworks and Sewerage Authority – Regulatory Office

NAWASA National Waterworks and Sewerage Authority

NCR National Capital Region



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NEDA National Economic and Development Authority

NGO Non- Government Organization

NRW Non-revenue water

NSCB National Statistics and Coordination Board

NWRB National Water Resources Board / National Water Code of the Philippines (Presidential Decree 1067)

NWRC National Water Resources Council

NWRMO National Water Resources Management Office

O&M Operations and Maintenance

OGCC Office of Government Corporate Counsel

OPDS Office of Project Development Services, DILG

OPEX Operational Expenditure

PAWD Philippines Association of Water Districts

PDMF Project Development Monitoring Facility

PGB Provincial Government of Bohol

PMU Project Management Unit

PNSDW Philippine National Standards for Drinking Water

PO Private Operator

PPDO Provincial Planning and Development Office

PPP Public Private Partnership

PPPC Public Private Partnership Center

PSSR Philippine Sustainable Sanitation Roadmap

PWRF Philippine Water Revolving Fund

PWSRM Philippines Water and Sanitation Road Map

PWSSR Philippine Water Supply Sector Roadmap

RDC Regional Development Council

ROI Return on Investment

ROO Rehabilitate –Own and Operate

ROO Rehabilitate –Own and Operate

ROT Rehabilitate-Operate and Transfer



RWDC Rural Waterworks Development Corporation

RWSA Rural Water Supply Associations

SB Sangguniang Bayan (municipal Council)

SPV Special Purpose Vehicle

STAWD Southern Tagalog Water District Association

TIEZA Tourism Infrastructure and Enterprise Zone Authority



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TOR Terms of Reference

UNICEF United Nations International Children and Education Fund

UP University of the Philippines

WASH Sustainable water, sanitation, and hygiene

WB World Bank

WBSP World Bank’s Water and Sanitation Program

WD Water District

WDI World Development Indicators

WHO World Health Organization

WPEP Water Supply and Sanitation Performance Enhancement Project

WS Water and Sanitation

WSP Water and Sanitation Program

WSPEAP Water and Sanitation Program East Asia and the Pacific

WSS Water Supply and Sanitation

WSS PMO Water Supply and Sanitation Program Management Office

WSS PPP Water Supply and Sanitation Public Private Partnership

WSSPMO Water and Sanitation Program Management Office

WTP Willingness to pay


Executive Summary

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Executive Summary

This document is the Philippines Country Report, one of the country reports from the four countries selected for the Study on Domestic Private Sector Provision of Water and Sanitation Services in Rural Growth Areas and Small Towns: The Role of Public Sector. The Philippines Country Report aims to identify good practices in the Philippines in strengthening public institutions to effectively engage domestic private sector in providing water supply and sanitation services in small towns and rural areas. The case study was prepared by Economic Consulting Associates Ltd under the guidance of Mouhamed Fadel Ndaw, Sr. Water & Sanitation Specialist at the World Bank.

Water supply and sanitation service provision

At first sight, the institutional arrangements in the Philippines water sector look very complicated, with overlaps between executive functions, regulatory functions and service provision. It might be expected that these overlaps would be incompatible with extensive private sector participation, but, on the contrary, the local private sector manages to thrive in this environment. There are many examples of Domestic Private Sector Participation (DPSP) in providing water supply and sanitation (WSS) services in small towns in the Philippines. In 2009, it was estimated that 25% of piped water services is provided by private operators1.

The WSS sector has no central legislation, in that there is no one single law that governs both water supply and sanitation sector, and there is no single national government institution that is tasked with overseeing the operation of the sector. The Water Code of 1976 governs the water sector in general, but this is more relevant to the allocation of water resources than to water supply service provision, and does not cover sanitation. The Local Government Code (LGC) of 1991 provides that WSS services are the responsibility of Local Government Units (LGUs), and allows the LGUs to choose how to provide these services.

Some LGUs choose to establish Water Districts (WDs), which, by virtue of a special charter (Presidential Decree 198) then become corporatized water utilities separate from the LGU, to operate and maintain the water supply system and provide water supply services to the community in the service area. Other LGUs choose to operate and maintain the water supply system themselves. The LGU-operated system is not separate from the LGUs, with budgetary allocations directly connected to the LGU’s accounts. A third category of LGUs choose to partner with private companies to provide water supply and sanitation services.

Urban dynamics and WSS service provision

There does not seem to be a straightforward and general definition of a small town in the context of the Philippines because even towns with a relatively bigger population could be regarded as “small” in terms of economic status. In the discussions with private service providers, many suggest that towns with populations between 10,000 and 100,000 are

1 Rolando Tungpalan, Deputy Director General, NEDA, Small Town Water Supply in the Philippines, 2009. A World Bank program is currently updating this figure by conducting a survey of water service providers in the Philippines


Executive Summary

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considered small towns. This is consistent with the definition of small towns used in ADB small town water project in the Philippines.

For water supply and sanitation purposes, urban areas or municipalities can also be classified based on the number of potential water connections, and the level of service being provided. For example, in small urban towns and rural areas, Community Based Organisations (CBOs) operate supply systems offering services at Level I (stand-alone water points) and Level II (piped water with communal water points). As the area grows and becomes more urban or more densely populated, communities may request their LGU to provide Level III service (piped water with private connections).

Although there are also some CBOs that operate Level III systems, as the small urban or rural area grows, the water systems become more complex, and therefore more professional water utility management skills are required to operate and maintain the system. The LGU will then deliberate on how best to provide the Level III service, by establishing a WD, by providing these services themselves, or by soliciting a private investor/operator.

In some cases, when a private sector entity becomes aware of a community requiring Level III service, the company can approach the LGU with an unsolicited proposal. This is quite common in the Philippines, as confirmed by the discussions with a number of small private companies.

Public-Private Partnership (PPP) development

The Government of the Philippines has put significant effort into developing a strong PPP framework that has been accepted and adapted by the majority of government institutions, national and local.

The Philippines Constitution of 1987 explicitly acknowledged the private sector’s critical role in the country’s development agenda. This was followed soon after by the development and enactment of a Build Operate Transfer (BOT) Law in 1990, which aims to mobilise private sector to invest in building, operating and maintaining infrastructure projects and other development programs that had been until then the responsibility of government at national and local levels.

In 1994, the BOT Law was amended to include the commitment of the government to support the private sector through providing financial incentives and minimising government regulation. In 2010, the Aquino administration showed further commitment to the development of PPP through the issuance of the Executive Order No 8, which established the PPP Centre, a central government institution tasked with the role of facilitating the implementation of the PPP program and the associated PPP projects.

In the early stages of the PPP framework, BOT, or Build Operate Transfer, was the main type or mode of partnership between public institutions and private entities, which explains the enactment of a BOT Law, instead of PPP Law. In the BOT Law, PPP is loosely defined as “contractual arrangement between the government and the private sector, whereby the latter finances, constructs and in some cases operates and maintains a facility or project”.

However, the BOT Law does also provide for other types of PPP contractual arrangements, and over the years many different types of contractual arrangements have been used in the WSS sector, as well as in other infrastructure sectors. To ensure that water supply service


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provisions are provided efficiently and still be affordable to the public, the BOT Law also provide a cap to the rate of return that the private partner can have in an unsolicited PPP project.

Experience with DPSP in water supply and sanitation

The private operators in the Philippines, both small and large companies, are actively looking for new opportunities and frequently engaging LGUs in discussions about water supply service provision.

The vibrant and competitive DPSP market that has emerged in the WSS sector leads to many unsolicited proposals being made by private companies to LGUs. Private companies prefer this method of selection because as project originators, in most cases they can negotiate directly with the LGU and hence shorten the procurement process, and it more or less ensures the granting of the contract to the original proponent. The LGUs also benefits from the unsolicited proposal, as they do not have to conduct the preparatory studies required for the solicited process.

However, there are downsides to unsolicited proposals notably that the unsolicited bid may not be at a competitive price. It also requires the LGUs to have the capacity to properly review and assess the proposals so that they can choose the best project that will bring the most benefit to the community. To obviate this, the BOT Law requires that such bids should be subject to a Swiss Challenge, but in practice (in the water sector), the cost of obtaining the tender documents is often set at a high level, making it difficult for other private companies that would like to challenge the proposal to do so. In other sectors, other ways was found to deter challengers, such as the short time given to challenger to conduct due diligence and prepare comparative bids.

In reality, most private operators prefer a Joint Venture (JV) type contract using the Local Government Code as the legal basis to a BOT contract. Most unsolicited proposals are for Joint Venture arrangements with the LGUs. The private companies prefer this type of contract because as a partner, the LGU will have certain responsibilities, such as providing land rights and/or rights of way, assistance in acquiring permits and licences, and assistance in getting any other approvals from other government agencies. In addition, the approval of a JV arrangement using the Local Government Code is within the local legislative body only, in contrast to an arrangement under the BOT Law that requires external approvals such as the local development councils or even a national government oversight committee.

Some LGUs also prefer the JV arrangement, as in this type of arrangement, the private company is viewed as a partner in development, and not just a profit making organisation. The LGUs also feels more comfortable with this arrangement because as a shareholder, they will have a bit more control over the operation of the Joint Venture Company.

In general, the performance of the DPSP providers has been good. In almost all cases, albeit some early adjustments being required, in the towns they are serving the domestic private operators have managed to increase access to water supply, reduce losses and improve efficiency.


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Good practices in encouraging DPSP in water supply and sanitation

Compared to the other countries in this study, it can be said that the Philippines has successfully created a market for DPSP in the WSS sector, both in large cities and also in small towns and intermediate urban areas.

One of the key success factors is that the Government has put considerable effort into market development for DPSP and PPP in infrastructure sectors. Examples of the market-making efforts by the Government include:

Establishment of a national PPP framework – having a PPP legal framework provides the legal base for government institutions to seek private partners to provide public infrastructure and services, and for private companies to seek out opportunities in those sectors.

Institutional support – the establishment of the PPP Centre as the one-stop-shop that government institutions can draw resources from has improved the capacity and capability of government institutions to implement PPP projects, including in the WSS sector. In addition to the PPP Centre, the Department of Interior and Local Government (DILG), the central government institution responsible for supporting LGUs, provides various capacity-building programs aimed at preparing LGUs to improve water supply systems that they operate or contract private partners for WSS service provision.

Financial incentives – the PPP framework specifically identifies types of financial support that the private companies can draw upon in PPP projects.

Less restrictive regulation – the lack of a central regulatory agency in the Philippines may be seen as a negative, especially if looking at the commonly accepted international best practice that is oriented towards having a national regulatory body. In the case of the Philippines however, the absence of such a body has not been a major problem. In terms of DPSP arrangements, most existing ones are regulated by contract, which means the terms of the contracts can be more flexibly formulated, but invariably include basic regulatory requirements, such as key performance indicator (KPI) targets and tariff adjustment processes.

Support from development partners – the government has succeeded in obtaining and channelling both technical and financial support to the encouragement of DPSP in the WSS sector. For example, the World Bank has been working with the PPP Centre in developing business case templates that can be used by LGUs to implement WSS PPP projects. Another example is the Accredited Technical Service Providers (ATSP) program, whereby the World Bank assists NWRB to approve and accredit technical and financial experts, and creates a pool of local and international experts that can be called upon by LGUs or WDs to assist them in WSS service provision.


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Lessons learnt from the Philippines experience

The main lesson learnt from the Philippines is that political support is very important in developing a market for DPSPs. The PPP framework in the Philippines was championed by the President in 1994, and has had continued support from the political leaders who have followed. The government’s commitment to PPP, and the robust structure it has set up to promote and facilitate PPPs, has sent a strong message to the private companies that they will have opportunity to invest in and make reasonable returns from public infrastructure and service provision. In addition, success stories from other sectors, such as toll roads, along with the Metro Manila water concessions have increased private sector confidence.

Another point to take from the Philippines experience is that there is no one perfect solution in terms of the type of contractual arrangement or procurement process that can be prescribed for successful DPSP in the WSS sector. A partnership between government institutions and private companies is best formed through mutual trust, with both parties seeing the benefit of the partnership. Therefore, one of the most useful forms of support to public institution is to build their capacity, so that they will be able to form these relationships with the private sector, and to be able to assess and chose the most suitable partners and partnership models for different projects so as to maximise benefits for the community.

Areas to be improved

In considering how best to encourage DPSP in small town WSS service provision, one area that can be improved on in the Philippines is in improving the competitiveness of the procurement process. Although the unsolicited method of procurement is preferred by both private companies and LGUs, it can be improved to ensure fair competition.

The current legal framework, the BOT Law and the Joint Venture Guideline do require a challenge process for unsolicited proposals and for security bids. However, there are no specific clauses that prescribe or suggest a maximum cost to obtain tender documents for unsolicited proposals.

In addition, LGUs capacity and ability to develop business cases and assess solicited and unsolicited proposals should also be improved to ensure that the best options are chosen.


Introduction

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1 Introduction

Economic Consulting Associates Limited (ECA) has been engaged by the Water and Sanitation Program (WSP) of the World Bank to conduct the Study to Strengthening Public Institutions in Engaging and Regulating Domestic Private Sector for the Provision of Water and Sanitation Services in Rural Growth Areas and Small Towns.

1.1 Overview of the Study

As stated in the Terms of Reference (TOR), the objective of this study is “to consolidate knowledge so far gained by the World Bank Group and its partners at global level and provide operating procedures and guidance to developing countries and WBG task teams on how to support public institutions in effectively engaging the local private sector to deliver better water and sanitation services especially to the poor in rural growth centres and small towns”.

This study is being conducted in three phases: a desk review phase, field-diagnostic phase and knowledge dissemination phase. The specific objectives, activities and tasks for each phase and the resulting deliverables are summarised in Figure 1.

Figure 1 Summary of study objective, activities and deliverables

The study focuses on piped water schemes in rural and small towns where local private actors increasingly represent a significant group of stakeholders, using lessons learnt and


Introduction

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experiences from the selected countries: Bangladesh, Colombia, the Philippines and Uganda.

1.2 Objective of this Country Report

This document is the Philippines Country Report, one of the four country reports from the four countries selected for the study. The Philippines Country Report aims to identify good practices in the Philippines in strengthening public institutions to effectively engage domestic private sector in providing water and sanitation services.

The identified good practices from this Country Report and from the other three country reports will be used to define a set of key factors and approaches to designing pro-private sector participation reform, which will be described and elaborated in the next set of deliverables: the Strategic Guidelines and Standard Operating Procedures.

The Philippines Country Report was based on a desk study research, followed by field visits to Manila, Cebu Island and Bohol Island, from Thursday 24 September 2014 to Thursday 2 October 2014. A list of the institutions visited and interviewed are included in Annex 1.

1.3 Structure of this Country Report

The rest of this Country Report is structured as follows:

Section 2 provides a background to the water sector and public-private partnership development or profile in the Philippines

Section 3 discusses the dynamics of urban hierarchy in the Philippines, and how this affects public service provision, especially water supply and sanitation services

Section 4 focuses on the Philippines’ experience with domestic private service providers in the water supply and sanitation sector

Section 5 highlights key success factors and good practice used in the Philippines in encouraging domestic private service providers, and summarises areas to be improved in the Philippines.

In addition, Annex 1 provides a list of the institutions visited during the field visit, including summaries of the discussions with each institution.


Country Background

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2 Country Background

This section provides a background summary of the Philippines, including its economic, social and administration profiles, the current situation in the water supply and sanitation sector and current development of Public Private Partnership framework in the country.

2.1 Population, economic and administration profile

The Philippines is an archipelago composed of 7,107 islands, with a total land area of approximately 300,000 km2. Three of the largest islands are Luzon, where the National Capital Region is, Visayas in the middle of the archipelago, and Mindanao in the South.

Population and population growth

In July 2014, it is recorded that the population of the Philippines has reached 100 million, making the country the 12th country with more than 100 million populations. In addition, there are around 12 million Filipinos living outside of the Philippines.

The Philippines has one of the highest population growths in Asia, at a national rate of 2.04%. However, the rural population growth has declined over the years, and recorded at around 1.2% in 2013, whilst urban population growth has been increasing, recorded at 2.2% in 2013. In the same year, half of the population live in urban areas. Figure 2 summarises the Philippines urban and rural population in since 2010.

Figure 2 The Philippines urban and rural population

Source: World Development Indicators

The urban areas of Cavite, Laguna, Batangas, Rizal, and Quezon (CALABARZON), all are adjacent to Metro Manila, are now the most populated area in the country with 12.61 million inhabitants. The population of the CALABARZON corridor has surpassed that of the


Country Background

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National Capital Region, which is comprised of Metro Manila (11.86 million), and Central Luzon (10.14 million)2.

Economy and economic activities

The national economy of the Philippines is the 39th largest in the world, with an estimated 2013 Gross Domestic Product (GDP) of US$ 272.207 billion (nominal)3. Primary exports include semiconductors and electronic products, transport equipment, garments, copper products, petroleum products, coconut oil, and fruits.

The Philippine economy has been transforming from one based on agriculture to one based more on services and manufacturing. Of the country's total labor force of around 41 million, the agriculture sector employs close to 32% but contributes to only about 14% of GDP. The industrial sector employs around 14% of the workforce and accounts for 30% of GDP. Meanwhile the 47% of workers involved in the services sector are responsible for 56% of GDP.

The unemployment rate as of January 2013 stands at around 6.9% and the inflation rate as of May 13 was at 3.2%.Gross international reserves as of October 2013 are $83.201 billion. In 2004, public debt as a percentage of GDP was estimated to be 74.2% but in 2008 it fell to 56.9% and in 2012, 40.2%.The country is a net importer but it is also a creditor nation.

The economy is heavily reliant on remittance, which surpass Foreign Direct Investments (FDI) as a source of foreign currency. Regional development is uneven with Luzon – Metro Manila in particular – gaining most of the new economic growth at the expense of the other regions, although the government has taken steps to distribute economic growth by promoting investment in other areas of the country. Despite constraints, service industries such as tourism and business process outsourcing have been identified as areas with some of the best opportunities for growth for the country.

Administration and levels of government

The Philippines has a unitary-presidential type of government under the 1987 Constitution, with the president elected by popular vote for a six-year term. Legislature is comprised of the Senate and House of Representatives. Half of the Senate is elected every three years by popular vote for a six-year term, while members of the House are similarly elected for a three-year term. The judiciary is headed by the Supreme Court, where 15 justices are appointed by the president.

The 1987 Constitution provided for extensive decentralization and greater local autonomy, and for a new Local Government Code. The 1991 Local Government Code provides for the devolution, de-concentration, delegation and decentralization of financial resources for basic services. Therefore, the Philippines now has two levels of government, central or national government, and the local government units. Local government units (LGUs) are territorial

2 Asian Development Bank, Philippines Water Supply and Sanitation Sector Assessment, Strategy and Road Map, January 2013 3International Monetary Fund, World Economic Outlook data (April 2012)

http://en.wikipedia.org/wiki/List_of_countries_by_GDP_(nominal)

http://en.wikipedia.org/wiki/Gross_domestic_product

http://en.wikipedia.org/wiki/Semiconductors

http://en.wikipedia.org/wiki/Copper

http://en.wikipedia.org/wiki/Petroleum

http://en.wikipedia.org/wiki/Coconut_oil


Country Background

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and political subdivisions, legal authorities providing basic services, and partners of the national government. Table 1 summarises the types of LGUs in the Philippines.

Table 1 Definition of Local Government Units (LGUs)

Region A sub-national administrative unit comprising of several provinces having more or less homogenous characteristics, such as ethnic origin of inhabitants, dialect spoken, agricultural produce, etc.

Province The largest unit in the political structure of the Philippines. It consists, in varying numbers, of municipalities and, in some cases, of component cities. Its functions and duties in relation to its component cities and municipalities are generally coordinative and supervisory.

City There are three classes of cities in the Philippines: the highly urbanized, the independent component cities which are independent of the province, and the component cities which are part of the provinces where they are located and subject to their administrative supervision.

Municipality Is a political corporate body which is endowed with the facilities of a municipal corporation, exercised by and through the municipal government in conformity with law. It is a subsidiary of the province which consists of a number of barangays within its territorial boundaries, one of which is the seat of government found at the town proper (poblacion).

Barangay The smallest political unit into which cities and municipalities in the Philippines are divided. It is the basic unit of the Philippine political system. It consists of less than 1,000 inhabitants residing within the territorial limit of a city or municipality and administered by a set of elective officials, headed by a barangay chairman (punong barangay).

Source: National Statistical Coordination Board website: http://www.nscb.gov.ph/activestats/psgc/articles/con_lgu.asp

There are 17 administrative regions, which are not local government units – with the exception the Autonomous Region for Muslim Mindanao (ARMM), a sub-regional government created in response to the tension between the central government and the Muslim rebels in the area. As of September 30, 2013, the country had 80 provinces, 143 cities, 1,491 municipalities, and 42,028 barangays.

Cities are either independent or part of a province. Municipalities are always part of a province. Cities and municipalities are led by a mayor and the legislative arms are the Sangguniang Panlungsod for cities and Sangguniang Bayan for municipalities, which are composed of councillors elected at-large or in some cases, by district. In the Philippine context, many small towns fall under municipalities.

Barangays are basic units that plan and implement government policies and programs, and are sub-divided into either sitios or puroks. Neither the Autonomous Region for Muslim Mindanao (ARMM) nor a barangay's sitios or puroks have elected leaders or government branches.

http://www.nscb.gov.ph/activestats/psgc/articles/con_lgu.asp

http://en.wikipedia.org/wiki/Sangguniang_Panlungsod

http://en.wikipedia.org/wiki/Sangguniang_Bayan

http://en.wikipedia.org/wiki/Sitio

http://en.wikipedia.org/wiki/Purok


Country Background

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2.2 Water supply and sanitation profile

There is no singular and synchronized information and monitoring system on measuring the actual access and coverage of water supply services in the country, making it difficult to get exact figures. Various agencies involved in the water and sanitation sector compile various statistics on water supply and sanitation access and coverage using different methodologies and timeframes.

Currently, in an effort to coordinate and assess the water supply and sanitation sector, the National Economic and Development Authority (NEDA), funded by GIZ, is developing the draft water sector assessment report, which aims to gather updated and reliable data on water supply and sanitation provision, including access and coverage.

Using figures from the World Development Indicators, Figure 3 summarises access to improved water supply and sanitation services in the Philippines from 2000. Note that this statistic indicates the percentage of population with access to improved water supply and sanitation, and the definition of improved water supply and sanitation is very broad:

“An improved drinking-water source is defined as one that, by nature of its construction or through active intervention, is likely to be protected from outside contamination, in particular from contamination with faecal matter, and

An improved sanitation facility is defined as one that hygienically separates human excreta from human contact”4.

Figure 3 Access to improved water supply and sanitation

Source: World Development Indicators

4 Definition of improved water supply and sanitation used by WHO/UNICEF and other development agencies


Country Background

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In the Philippines, there are three levels of water supply services, as summarised in Table 2.

Table 2 Definition of water supply service levels in the Philippines

LEVELS OF WATER SYSTEMS IN THE PHILIPPINES[

Level I

Stand-alone water points, e.g., hand pumps, shallow wells, rainwater collectors

This system is usually adopted by barangays located on the hinterland areas where the cost of providing piped-water supply system (Level III) or even communal water supply system (Level II) would be prohibitive. Usually this system is being adopted in areas where population are dispersed throughout the barangays.

Level II

Piped water with a communal water point, e.g., bore-well, spring system

This system is usually applied in areas where population distribution is sparsely concentrated where pubic faucets are installed servicing around 10 to 20 families per public faucet.

Level III

Piped water supply with a private water point, e.g., house connection

This system is what is known as the piped water supply system where every water consumers, of various categories, are connected to the to the water supply provider through a metered service connections.

Source: National Economic and Development Authority Board Resolution No. 12 series of 1995

Based on the levels of service, Figure 4 summarised water supply service coverage in the Philippines in 2014.


Country Background

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Figure 4 Access to different levels of water supply services

Source: Castalia and Lahmeyer IDP Consult, Final Report: Philippines Water Supply and Sanitation Unified Financing Framework, February 2015

Access to sanitation services is still lagging behind. Only around 5% of the total population in the Philippines is connected to a piped sewer network. The vast majority uses flush toilets connected to septic tanks. Since sludge treatment and disposal facilities are rare, most effluents are discharged without treatment. Open defecation is still practiced in many areas, especially in highly populated ones, as toilets are not available in the majority of poor households. This results in polluted waterways and the spread of fatal and infectious diseases. According to the Asian Development Bank, the Pasig River is one of the world's most polluted rivers.

Figure 5 summarised sanitation coverage in the Philippines.


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Figure 5 Access to different types of sanitation services

Source: Castalia and Lahmeyer IDP Consult, Final Report: Philippines Water Supply and Sanitation Unified Financing Framework, February 2015

However, the Philippine Sustainable Sanitation Plan (PSSP) predicts that the 2015 Millennium Development Goal (MDG) sanitation target can be achieved. The March 2012 Joint Monitoring Program (JMP) Report estimated national coverage for sanitation facilities in the Philippines to be 74% in 2010, with 79% coverage in urban areas and 69% in rural areas. According to National Statistics Office (NSO) figures cited by National Statistic Coordination Board (NSCB) in July 2012, 92.5% of households had access to basic sanitation (i.e., sanitary toilets) in 2011, up from 76.0% in 2008, with a decrease to 83.8% by 2016 projected.

2.2.1 Legal framework

The management structure of water supply and sanitation services in the Philippines was, in the past, a centralized system. However, throughout the years, the water supply and sanitation sector have become more and more decentralised. Box 1 provides a brief history of the water supply and sanitation sector as shown by the succession of legal documents.

Box 1: Decentralisation of water supply and sanitation service provision

The Republic Act No 1383 in 1955 formed the National Waterworks and Sewerage Authority (NAWASA), which at the time owned and had jurisdiction, supervision and control over all territory served by existing government-owned waterworks, sewerage


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and drainage systems within the boundaries of cities, municipalities, and municipal districts in the Philippines

The Republic Act No 6234 in 1971 (the MWSS Charter) supersedes the above, and decentralised the water sector by dissolving NAWASA and forming the Metropolitan Waterworks and Sewerage System (MWSS), which is responsible for service provision in Metro Manila, whereas other municipal and provincial water and sewerage systems in about 1,500 cities and towns became the responsibilities of the local governments

Presidential Decree No 198 in 1973 or the Provincial Water Utilities Act further strengthen the decentralised system by introducing a new management model for urban water supply by encouraging Local Government Units (LGUs) to form water utilities called “Water Districts”, which operate with a certain degree of autonomy from LGUs. The same Presidential Decree also establishes the Local Water Utilities Administration (LWUA), which is a government-owned and controlled corporation (GOCC) with a specialized lending function to promote and oversee the development of water supply systems in provincial cities and municipalities outside of Metropolitan Manila.

Presidential Decree No 1067 in 1976, or more known as the Water Code of the Philippines, governs the water resource allocation, priority and use, which include water supply. It also reviews and develops water pricing and distribution.

Local Government Code of 1991 reinforces that LGUs are responsible for the delivery of basic services including water supply and sanitation.

Currently, there are three main legal documents governing the water supply and sanitation sector in the Philippines. The inter-relationship between the three legal documents are summarised in Figure 6.


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Figure 6 Summary of the legal framework for water supply and sanitation sector

Water Code of the Philippines (Presidential Decree 1067, 1976)

In 1976, Presidential Decree No. 1067, otherwise known as the “Water Code of the Philippines” was enacted. The objectives of this Code are:

To established the basic principles and framework relating to the appropriation, control and conservation of water resources to achieve the optimum development and rational utilization of these resources;

To define the extent of the rights and obligations of water users and owners including the protection and regulation of such rights;

To adopt a basic law governing the ownership, appropriation, utilization, exploitation, development, conservation and protection of water resource and rights to land related thereto; and

To identify the administrative agencies this will enforce this Code.

The allocation of water resources became a sensitive issue in the water industry, water is considered scarce resource. The Water Code stated that water for domestic or municipal purposes should be prioritised.

National Water Resource Board (Executive Order No. 124-A-1974)

This Executive Order 124-A (EO 124-A) administratively reorganise the National Water Resource Board (NWRB), which was previously known as the National Water Resource


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Council. NWRB is also governed by the Public Services Act. According to the EO 124-A, the functions and responsibilities of the NWRB are three fold:

Formulation and coordination of policies, programs and standards relating to the Philippine Water Sector

Management and regulation all water-related activities

Regulation and monitoring of water utilities.

NWRB is also tasked to advise the National Economic and Development Authority (NEDA) on matters relating to water resources development projects and programs, recommend general policies and guidelines, and short and long term plans and programs for water resources development.

Therefore, in conjunction with the Water Code of the Philippines, NWRB is responsible for ensuring the optimum exploitation, utilization, development, conservation and protection of the country's water resource, consistent with the principles of Integrated Water Resource Management.

Local Government Code of the Philippines (Republic Act 7160, 1991)

The Local Government Code (LGC) declares that the Philippines Government’s commitment to decentralisation and provides for autonomy to the Local Government Units, which includes provincial governments, cities, municipalities, and barangays.

Two key points from the LGC in relation to water supply and sanitation service provision:

Basic services and facilities – LGUs are responsible to provide basic services to the community and have the power to charge fees for such services. LGUs have the power to delegate the responsibility of public service provision to other institutions or agencies. Infrastructure facilities include water supply system and public service provision includes water supply services.

Corporate powers – As a corporation, LGUs are allowed to enter into contracts with other legal entities. LGUs may also enter into joint ventures and other form of cooperative arrangements with people and other non-governmental entities to provide basic services and other developments that will benefit the communities.

The above provision in the LGC provide the power and authority to all LGUs to participate in a Public Private Partnership program for the development of various infrastructure projects in their jurisdictions, including water supply and sanitation facilities and service provision.

Provincial Water Utilities Act (Presidential Decree 198, 1973)

This Act declares the national policy that allows LGUs to establish local Water Districts (WDs), which are local water utilities. The Act also provides for the administration and operation of the WDs.


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According to the Act, WDs may be established for the purpose of:

Acquiring, installing, improving, maintaining and operating water supply and distribution systems for domestic, industrial, municipal and agricultural uses for residents and lands within the boundaries of such districts,

Providing, maintaining and operating waste-water collection, treatment and disposal facilities, and

Conducting other functions and operations incidental to water resource development, utilization and disposal within such districts, as are necessary or incidental to said purpose.

To establish WDs, LGUs must obtain the approval of the local councils before applying for the authority to form and independent water supply system (Conditional Certificate of Conformance or CCC) from the Local Water Utilities Administration (LWUA).Once established and the CCC has been issued, the WDs has the power and authority to enter into contracts and/or partnerships with any person or legal entities for the purpose of performing its functions.

2.2.2 Institutional arrangement

The Philippines water sector institutional arrangement is very complicated, with overlaps between executive functions, regulatory functions and service provision. Figure 7 provides the basic institutional framework that defines the role of various government agencies involved in the provision of water supply and sanitation services. The diagram indicates that there is no central organization that is tasked to oversee the operations of entire water supply and sanitation services in the Philippines. The mandate and current activities of each of the institutions are summarised in Table 3 below. Institutions performing regulatory functions are discussed in the next section.


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Figure 7 Institutional arrangement of the water supply and sanitation sector

In summary, there are three main functional groups:

Executive functions – such as policy formulation and general support to the sector in terms of financial and technical support, capacity building and monitoring. The Department of Interior and Local Government (DILG), Department of Public Works and Highway (DPWH), Department of Environment and Natural Resources (DENR) and the Department of Health (DOH) fulfil this function

Regulatory functions – such as issuing licences or permits to abstract water or to operate a water supply and sanitation systems, review and approvals of tariffs are done by these institutions: Local Water Utilities Administration (LWUA), National Water Resources Board (NWRB), and Metropolitan Waterworks and Sewerage Systems (MWSS). In addition, the Local Government Code allows self-regulation by the LGUs

Service provision – these institutions provide various types of water supply and sanitation services: Water Districts (WDs), LGUs and cooperatives or community based organisations, MWSS, and private operators.


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Table 3 Summary of institutions performing executive functions

Institution Mandate Responsibilities in relation to the WSS sector

Department of Interior and Local Government (DILG)

To strengthen local governments capability in effective delivery of basic services to the community

Within the organizational structure of DILG is the Water and Sanitation Program Management Office (WSSPMO), under the Office of Project Development Services (OPDS), has the main responsibility to support the provision of water supply and sanitation services provision by the Local Government Units (LGUs).

DILG defines and enforces quality and performance standards for the LGU-operated water system. However, the LGUs retain the responsibilities for planning, financing, and regulating water supply.

Department of Public Works and Highway (DPWH)

To undertake the planning of infrastructure, including water resources projects and other public works, and the design, construction, and maintenance of national roads and bridges, and major flood control systems.

DPWH is the umbrella department for the LWUA, and is lead agency for an inter-agency committee to develop a water resources sector master plan that will effectively address issues and challenges in the water sector in the country.

DPWH also provides support for the improvement of LGU-operated water supply and sanitation system by way of development of additional water sources designed to increase the supply capacity in the rural level in particular to Level II system.

Department of Environment and Natural Resources (DENR)

To govern and supervise the exploration, development, utilization, and conservation of the country's natural resources.

DENR’s prime role in the water supply and sanitation sector is to monitor effluent from the wastewater/septage treatment plants prior to its disposal to natural waterways, like rivers, lake, and artificial impounding water.

DENR also set the monitoring parameter and effluent standards that water supply and sanitation service providers must comply with.

Department of Health (DOH)

To ensure access to public health services through the provision of quality health care, and the regulation of all health services and products.

In general, the DOH provides leadership and capacity building in health services and administers specfic services.

DOH develop national plans, technical standards, and guidelines on health. DOH is also the regulator of all health services and products, the DOH is the provider of special tertiary health care services and technical assistance to health providers and stakeholders.

For water supply and sanitation sector, DOH provides facilities to monitor and regulate the water quality being distributed to all water consumers by the water and sanitation service provider, and enforces the Philippine National Standards for Drinking Water (PNSDW).


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In addition, there are several other national level institutions directly involved in the water supply and sanitation sector:

National Economic and Development Authority (NEDA) – is an independent cabinet-level agency of the Philippine government responsible for economic development and planning. The mandate of NEDA is basically to establish the institutional roles and responsibilities of various sector agencies, develop a broad target coverage for the country and defines wide range of policies particularly regarding access of low-income groups to basic services (like WSS), cost recovery to support sustainability of infrastructure development, incentives to improve operational efficiency and formulate concrete mechanisms for Private Sector improvement. NEDA is responsible for the coordination of the preparation of national development plans and investment programs, formulation of sector policies and strategies, monitoring implementation of policies, programs and projects.

Philippines Association of Water Districts (PAWD) – was created in 1974 and is the umbrella organization of all WDs in the Philippines. PAWD is dedicated to advocate and promote pertinent policies, standards and programs to ensure effective and sustainable water districts operations and collaboration among WDs in the Philippines. PAWD is committed to develop, implement and manage relevant programs that would harness team-works among its members and strengthen partnership with other institutions within and outside the country.

In terms of service provisions, there are three types of service providers providing Level III (piped water supply) in the Philippines:

Government Owned and Controlled Corporations (GOCCs) – defined as the branch of the national government that conduct both commercial and non-commercial activities. Water supply and sanitation service providers classifies as GOCCs are:

Water Districts (WDs) – a local corporate entity that operates and maintains water supply systems in one or more provincial cities or municipalities. In essence, a WD is a utility that is legally and financially separate from the LGU. LGUs have the option to establish WDs to provide WSS services in their area. Out of 1,500 municipalities and cities, there are around 844 Water Districts that have been created. However, under the present conditions, only 576 remain actively operational.

Metropolitan Waterworks and Sewerage System (MWSS) – is a GOCC created to provide WSS services in the National Capital Region or the Metropolitan Manila including part of the selected municipalities (i.e, without Water Districts) of the provinces of Rizal, Cavite and Bulacan. However, since 1997 MWSS has delegated this responsibility to two private concessionaires.

Tourism Infrastructure and Enterprise Zone Authority (TIEZA) - provides WSS in tourist destinations that are declared as Tourist Zone, which includes the Boracay Island, Tagaytay Resort, Balicasag Island, amongst other.


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Local Government Units (LGUs) – LGUs are responsible for the provision of WSS services, as mandated in the Local Government Code. Some LGUs prefer to provide WSS services themselves, rather than establishing WDs. The operations and maintenance of the LGU-operated water supply and sanitation system is usually under the offices of the Municipal Engineers for the technical operation and maintenance, and the office of Municipal Treasurer for the commercial component of the system, such as billings and collections. The DILG has a program to support to participating LGU who operates their own systems, and through this program provides financial support and capacity building program as well envisaged to ensure sustainable services to all water consumers in the municipal level.

Partnership with private entities – in some cases, WSS services are being provided by private entities under various contractual arrangements with the LGU or WD. The most common and preferred contractual arrangement is a joint venture between the private entity and the LGU, as this has the implication that the private entity is a partner to the LGU. Many LGUs are more comfortable with this arrangement, and for the private entity, this is also preferred because as a partner, the LGU is also obligated to contribute to the partnership, such as assistance in obtaining rights of way, licences or permits. Other contractual arrangements include bulk water supply contracts, Design Build Lease (DBL) contracts and its variations, concession contracts, and franchise assignee arrangements.

In small urban areas or rural areas, water supply service provisions are mostly provided by Community Based Organisations (CBOs). CBOs involved in water supply include 200 cooperatives, 3,100 Barangay Water and Sanitation Associations (BWSAs) and 500 Rural Water Supply Associations (RWSAs). CBOs usually operate Level I (non-piped water systems) or Level II (shared connection pipe system) water supply systems with support from National Governments or non-governmental organisations (NGOs).

2.2.3 Regulatory framework

The Philippines does not yet have a comprehensive regulatory framework, and the regulation of water supply and sanitation services is still fragmented, mostly based on the type of service providers. Table 4 summarises current institutions performing regulatory functions.


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Table 4 Summary of institutions performing regulatory functions

Institution Mandate Responsibilities in relation to the WSS sector

National Water Resources Board

To ensure the optimum exploitation, utilization, development, conservation and protection of the country's water resource, consistent with the principles of Integrated Water Resource Management.

NWRB is the main regulatory agency for the water sector in general. The regulatory functions of NWRB includes the issuance of water permits for the appropriation and use of water, and the adjudication of disputes regarding the use of water.

In terms of economic regulation, NWRB is tasked to regulate (review and approve) water supply tarrifs charged by private operators and private service providers. NWRB's authority to approve and review WDs' tariffs was transferred to LWUA.

NWRB is also responsible for the issuance of Certificate of Public Convenience (CPC) and Certificate of Public Convenience and Necessity (CPCN), which are in essence permits to provide public services, to any private water operators.

Local Water Utilities Administration (LWUA)

To promote and oversee the development of water supply systems in provincial cities and municipalities outside of Metropolitan Manila.

To review tariff proposals from WDs

LWUA is a Government-Owned and Controlled Corporation (GOCC) with a specialized lending function to the Water Districts.

LWUA allocates and re-lends the funds to WDs at competitive terms. Some funds, meanwhile, are extended as grants. Under recent enhancements to its charter, LWUA is also tasked to assist water districts graduate into creditworthy status and access non-traditional sources of funds.

LWUA regulates WDs in terms of tariff setting (including publishing a guideline on how to calculate tariffs, reviewing and approving tariffs), establishing and monitoring key performance indicators (KPI) and business efficiency measures (BEM), such as service coverage, collection efficiency, prevailing pressure in the distribution system, non-revenue water (NRW).

LWUA also provides institutional development assistance in the form of advisory and managerial services; transfers policy-making, managerial and technical competence to the WDs.

Metropolitan Waterworks and Sewerage Systems (MWSS)

To ensure an uninterrupted and adequate supply and distribution of potable water for domestic and other purposes and the proper operation and maintenance of sewerage systems in Metro Manila and parts of the provinces of Cavite and Rizal and part of Bulacan province.

Currently, MWSS has transferred the operation and management of the entire water supply and sewerage system for 25 years to its two water concessionnaires in the east and west zones of Metropolitan Manila.

MWSS Regulatory Office (MWSS-RO) is a separate unit within MWSS tasked with regulating the two concessionnaires through the contracts.

Regulatory functions performed by NWSS-RO includes tariff reviews and approvals, and performance monitoring in accordance to the contract terms.


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Efforts have been made to strengthen the regulatory framework of the water supply and sanitation sector. Several Congressional Bills have been issued to establish an independent regulatory agency. As part of a World Bank project, a report on recommendations on regulatory framework has been submitted. Part of the recommendation is to strengthen NWRB’s capacity as a regulator as a first step of establishing a separate regulatory agency. The recommendations are planned to be implemented by the second half of 2015.

2.2.4 Policies, strategies and targets

The key policy documents for the water supply sector are the Philippine Water Supply Sector Roadmap (PWSSR), while for sanitation there are the Philippine Sustainable Sanitation Roadmap and Plan (PSSR and PSSP).

The PWSSR has the overall aim of providing “access to safe, adequate and sustainable water for all”, and envisions that:

By 2015, the water supply sector shall have achieved the MDG target of halving the proportion of the population without sustainable access to safe drinking water

By 2025, universal access coverage and sustainable utility operations have been attained, that existing formal/legal utilities continue to expand coverage at par with population growth, and that all water service providers shall have been regulated.

The PSSR is the country’s guide in achieving universal sanitation coverage, which serves as the basis of the PSSP. The overall vision of the PSSP is to have “a clean and healthy Philippines through safe, adequate and sustainable sanitation for all”, and envisioned that:

By 2015, the sanitation sector will have achieved the MDG target of halving the proportion of population without sustainable access to basic sanitation

By 2016, these targets should have been achieved:

70% LGUs will have local sanitation plans and budgets

85% of population will have access to sanitary toilets and basic sanitation coverage is achieved in 92 priority cities and provinces

National agencies will have put into place sanitation plans and programs consistent with PSSP

By 2028, universal access to safe and adequate sanitary facilities, behaviour change and proper hygiene practices will have become accepted norms within families and communities, and mechanisms for sustainable sanitation (i.e., link with health, agriculture, and environment) will have been institutionalized.

In addition to the above PWSSR and PSSP, recognizing the prevalence of septic tanks nationwide and the expense and difficulty of building sewerage infrastructure, the


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government is increasingly focusing on septage treatment as a near-term sanitation solution. The National Sewerage and Septage Management Program (NSSMP) was developed in 2009 and adopted and confirmed by NEDA in 2012. The objective of the NSSMP is for all LGUs to have septage management programs serving their urban barangays. For sewerage, the NSSMP is targeting 17 highly urbanised cities (HUCs) outside Metro Manila, serving 50% of urban barangays.

2.2.5 Financing framework

In the Philippines, there is no specific organization tasked to prioritize investment on water and sanitation. All institutions relevant to the water sector are obliged and expected to determine their short and long-term requirements for the rehabilitation, improvement and expansion of water and sanitation services which should entail investment cost. The Department of Budget and Management (DBM) does the annual budget review and assess investment requirements for the various water (and non-water) projects on national level, and then prioritise the budget allocation. On the sub-national level, the WDs and LGUs prepare their investment requirements based on project cost estimates, and submit budget allocation requests to NEDA.

In addition to government budget allocation, the Philippines have access to various other financing sources from development partners and donors. Local financing institutions that can channel these funds include LWUA, Land Bank of the Philippines, and the Development Bank of the Philippines. Many international financing institutions (IFIs) also have active presence in the Philippines, including: World Bank, Asian Development Bank (ADB), Japan Bank for International Cooperation (JICA), Korean International Cooperation Agency (KOICA), German Government (KfW), Danish Government (DANIDA) and many others.

It is worth noting that water districts and LGUs are not able to access financial support directly from the IFIs. Only national level institutions are able to receive direct financial support from the IFIs. However, water districts and LGUs are able to access these financial supports through re-lending programs by the Government.

In the past, water districts can only receive financial support from the Local Water Utilities Administration (LWUA) as stipulated in the Presidential Decree No. 198. Currently, the water districts can access loans from government or private banks or other lending institutions provided that a “Waiver” coming from the Administrator of LWUA is issued accordingly.

In some cases the Congressional Development Funds (CDF) provide allocation to support the water supply and sanitation programs of the Barangay Water Supply Association (BWSA) and Rural Water Supply Association (RWSA).

Some commercial banks are also providing financing products that are used by private companies to invest in the water supply and sanitation sector.


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2.3 Public Private Partnership profile

2.3.1 Overview of the PPP framework

The Philippines has a very comprehensive and well developed Public Private Partnership (PPP) framework, and is well ahead in terms on implementing PPP projects compared to its neighbouring countries. The Philippines Constitution 1987 explicitly acknowledged the private sectors critical role in the country’s development agenda. This is shown by the early development and enactment of a BOT Law in 1990, which aims to mobilise private sector to invest in building, operating and maintaining infrastructure projects and other development programs that have been until then the responsibility of the national and local government.

In 1994, the BOT Law was amended to include the commitment of the government in supporting the private sector through providing financial incentives and minimising government regulation. In 2010, the Aquino administration show further commitment to the development of PPP through the issuance of the Executive Order No 8, which reorganised and renamed the BOT Centre to PPP Centre, and relocate the PPP Centre from the Department of Trade and Industry (DTI) to the National Economic and Development Authority (NEDA).

In the early stages of the PPP framework, BOT, or Build Operate Transfer, is the main type or mode of partnership between public institutions and private entities, which explains the enactment of a BOT Law, instead of PPP Law. In the BOT Law, PPP is loosely defined as “contractual arrangement between the government and the private sector, whereby the latter finances, constructs and in some cases operates and maintains a facility or project”.

In practice, the understanding of the concept of PPP is still related to BOT. Most public institutions and private entities interviewed have the view that PPP means BOT, which means that the private partner will need to invest in the project. This is a very narrow definition of the PPP concept, as it excludes other types of contractual arrangements that do not involve private investment, such as operation and maintenance contracts. The PPP Centre has made great efforts to improve government institutions, national and local, understanding of PPP through publishing various manuals for implementing PPP projects on their website, as discussed in the next section.

2.3.2 Legal framework for PPP

The main legal framework for PPP is the Build Operate Transfer (BOT) Law, Republic Act No 6957 as amended by Republic Act 7718. The BOT Law acknowledges the role of private sector in providing public infrastructure and services and provides for incentives and government support to mobile private resources. The BOT Law also describes types of partnerships between public and private entities, and acknowledges two types of procurement models:

Solicited – whereby the national government agency (NGA) or LGUs initiate the project, conduct the necessary project preparation studies and conduct a tender process to find the most appropriate and suitable private partner. The BOT Law prescribes the procurement process that NGAs and LGUs need to comply with.


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Unsolicited – whereby the private entity initiate the project, conduct the project preparation studies and submit a proposal for the project to the NGA or LGU. The BOT Law allows for this type of procurement model if:

The project involves new concept or technology and is not already in the list of priority projects

No government guarantee, subsidy or equity contribution is required

The NGA or LGU concerned has invited through publication for three weeks in newspapers of general circulation, comparative or competitive proposals to challenge the project proposed, and no challenging proposal is received within 60 days.

Table 5 compares the solicited and unsolicited processes.

Table 5 Comparing the solicited and unsolicited processes

PARTICULAR SOLICITED UNSOLICITED

Initiative Government formal Invitation through newspapers and website

Private proponent initiative.

Without invitation from the Government

Preparation Of Feasibility Studies

Studies to be prepared by the Government Implemening/ Executing Agencies.

Cost of studies charged to the Government and later on to be reimbursed by the winning Bidder.

On non-commital basis, studies to be preparared by the private proponents at no cost to the Government.

Execute non-exclusive MOU between Government and private proponent for the conduct of study (access to data and information).

Proposal Submission Technical and Financial Proposals are considred final.

No Swiss Challenge .

Original proponent's Proposal subject for Swiss Challenge.

Original proponent has the Right of First Refusal or Re-submission of Final Financial Proposal simulltaneous with the submisson of the Challlengers.

Duration Of Selection Process

Longer (usually takes more than a year from invitation to pre-qualify and submit proposals).

Shorter (usually within period of no more than 8 months from submmission of Unsolicited Proposal).

Level Of Advantage In Selection Process

Equal opportunity among Bidders Advantageous to original proponent (has option to adjust original proposal)

Other legal documents relevant to the implementation of PPP projects are summarised in Table 6.


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Table 6 Summary of PPP legal framework

Document Summary

Local Government Code (Replublic Act 7160, 1991)

Describes the powers and authority of LGUs to promote local development and allows LGUs to enter into contractual arrangements with private entities in fulfilling their functions.

Together with the DILG Memorandum Circualr 2010-16, provides for the creation of PPP Units/sub-committees at the local development councils to assist in the formulation of action plans and strategies for PPP projects at the local level.

Executive Order No 8, 2010

Reorganized and renamed the Build-Operate and Transfer (BOT) Centre to the Public-Private Partnership (PPP) Centre and transferred its attachment from the Department of Trade and Industry to the National Economic and Development Authority to improve the institutional framework for PPP.

Also establishes the Project Development and Monitoring Facility (PDMF) operated by the PPP Centre.

NEDA Revised Guidelines and Procedures for Entering into Joint Venture (JV) Agreements between Government and Private Entities, 2013

Provides the framework for PPPs that are pursued through the joint venture mode, applicable to all Government-Owned and Controlled Corporations (GOCCs), Government Corporate entities (GCEs), government instrumentalities with corporate powers (GICPs), government financial institutions (GFIs), state universities and colleges (SUCs), which are expressly authorized by law or their respective charters to enter into JV Agreements. Local Government Units (LGUs) are not covered by these Guidelines.

Executive Order No 68 and Memorandum Order No 226

Provides the guidelines for implementing PPP projects by WDs and for the review process of PPP projects by LWUA. These documents are anchored on the BOT Law.

Executive Order No 78, 2012

Mandated the inclusion of provisions on the use of alternative dispute resolution mechanisms in all contracts involving PPP, BOT and joint venture agreements between government and private entities, and those entered into by local government units.

Source: various legal documents as listed above

It is worth noting that the Joint Venture (JV) Guideline issued by NEDA does not cover joint venture agreements between LGUs and private entities, while the BOT Law does cover PPP arrangements between LGUs and private entities. LGUs looking to enter in JV agreements do not have a legal guideline to follow, which has caused some confusion in practice.

A new PPP Act is currently being developed and planned to be passed in 2015. The PPP Act will improve the existing BOT Law, and will clarify the definition and concept of PPPs, the modes and types of PPPs, PPP procurement types for both solicited and unsolicited projects, and will include guidelines for LGUs as well as NGAs and GOCCs.

The above PPP legal framework empowers and gives authority to government institutions to seek private partners to provide public services in a PPP arrangement. However, government institutions can also procure goods and services provided by private entities outside of the PPP arrangement, as shown in Box 2


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Box 2: Non PPP Government Procurement Process

The general government procurement guideline is the Government Procurement Reform Act (Republic Act 9184). This Act applies to the procurement of the following:

Civil work contractors – for the construction of water reservoirs, pipe lying, office buildings, and the likes

Supply of goods – for example pumps, valves, meters, computers, vehicles and the likes

Consulting services – for conducting feasibility studies, detailed engineering design and the likes.

This Act applies to all government institutions, but does not apply to Government Owned and Controlled Corporation (GOCC), such as Water Districts (WDs).

2.3.3 Institutional support for PPP projects

The Public-Private Partnership Centre (PPP Centre) is an agency under the National Economic and Development Authority (NEDA), which is tasked with the role of facilitating the implementation of PPP program and the projects being pursued by implementing agencies and LGUs.

According to the Executive Order No.8 (2010), the functions of the PPP Centre are:

Conduct project facilitation and assistance to the national implementing agencies, including government corporations, and Local Government Units (LGUs) in addressing impediments or bottlenecks in the implementation of PPP programs and projects;

Provide advisory services, technical assistance, trainings and capacity development to agencies/LGUs in PPP project preparation and development;

Recommend plans, policies and implementation guidelines related to PPP in consultation with appropriate oversight committees, implementing agencies, LGUs and the private sectors;

Manage and administer a revolving fund to be known as the Project Development and Monitoring Facility for the preparation of business case, pre-feasibility and feasibility studies and tender documents of PPP programs and projects;

Monitor and facilitate the implementation of the priority PPP programs and projects of the agencies/LGUs which shall be formulated by respective agencies/LGUs in coordination with the NEDA Secretariat;

Establish and manage a central database system of PPP Program and Projects;


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Recommend improvements to timelines in processing PPP programs and project proposals, and monitor compliance of all agencies/LGUs;

Prepare reports on the implementation of the PPP programs and projects of the government for submission to the President at the end of each year; and,

Perform such other functions which may be critical in expediting and implementing effectively the PPP Programs and Projects of the Government.

As part of its function, the PPP Centre publishes guidelines and manuals for LGUs and national government agencies (NGAs), along with other documents and presentations that provide information on the definition of PPP and how to implement a PPP project. The PPP Centre also publishes lists of PPP projects being implemented as well as opportunities for future PPP projects.

The PPP Centre manages the Project Development and Monitoring Facility (PDMF), a revolving fund that provides advisory services and technical assistance in project preparation and development, and capacity building for implementing agencies and local government units in all areas of the project development cycle.

Currently, the PPP Centre in partnership with the LWUA, DILG and NWRB are making efforts to streamline the transaction process for PPP projects through the productization program. Under this program, the PPP Centre and its partners aim to lower barriers for LGUs and water districts to enter into PPP arrangements.

In 2013, the PPP Centre has launched its LGU PPP Strategy that involved internship programs for LGU technical staff and partnership with state universities and colleges (SUC) and higher education institutions (HEI) in the provision of PPP training.


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3 Urban Development and WSS Provisions

This section looks at the dynamics of the urban hierarchy and how this affects public service provisions, in particular water supply and sanitation service provision in small towns and rural growth centres.

3.1 Dynamics of the urban hierarchy

Definition of small towns and rural areas

There does not seem to be a straightforward and general definition of a small town in the context of the Philippines because even towns with a relatively large population could be regarded as “small” in terms of economic status. The National Statistical Coordination Board (NSCB) provides definition of urban areas, which include cities and other areas within a province or region. The NSCB also provides categorisation of municipalities based on internal revenues. In terms of water supply and sanitation service provision, the definition of small towns uses a combination of these definitions plus other characteristics.

According to the NSCB, urban areas are defined by the national census as all settlements with a population density of at least 500 persons per square kilometre. Urban status also applies to centres with the following infrastructure:

a parallel or right-angled street pattern

at least six commercial, manufacturing or similar establishments

at least three of the following: a town hall, church or chapel; a public plaza, park or cemetery; a market place or building where trading activities are carried out at least once a week; and a public building such as a school, a hospital or a library.

Barangays (administrative units) with at least 1,000 inhabitants where the majority is not occupied in farming and/or fishing are also considered urban centres. All poblaciones or central districts and all barrios that do not meet the requirements for classification of urban are classified as rural5.

Urban areas can also be classified into three types of cities:

Highly Urbanized Cities (HUC) – Cities with a population of 200,000 or more, as certified by the National Statistics Office, and with the latest annual income of at least Php 50,000,000 as certified by the city treasurer.

5 http://www.nscb.gov.ph/activestats/psgc/articles/con_urbanrural.asp

http://www.nscb.gov.ph/activestats/psgc/articles/con_urbanrural.asp



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Independent Cities – Cities whose charters prohibit their voters from voting for provincial elective officials. Independent component cities shall be independent of the province.

Component Cities – Cities that are not HUC or Independent Cities are considered component cities of the province in which they are geographically located. If a component city is located within the boundaries of two or more provinces, such city shall be considered a component of the province of which it used to be a municipality.

Note that it is possible to have an urban area within a province that is not a city. For example, a municipality can be urban as well as rural.

In terms of income levels, cities and municipalities (which may include urban areas) are categorised into six classes, as shown in Table 7.

Table 7 Classes of municipalities based on income

Class Average Annual Income

Cities

First Php 400 million or more

Second Php 320 million or more but less than Php 400 million

Third Php 240 million or more but less than Php 320 million

Fourth Php 160 million or more but less than Php 240 million

Fifth Php 80 million or more but less than Php 160 million

Sixth Below Php 80 million

Municipalities

First Php55 million or more

Second Php 45 million or more but less than Php55 million

Third Php35 million or more but less than Php45 million

Fourth Php25 million or more but less than Php35 million

Fifth Php15 million or more but less than Php25 million

Sixth Below Php15 million

Source: http://www.nscb.gov.ph/activestats/psgc/articles/con_income.asp

For water supply and sanitation purposes, urban areas or municipalities can also be classified based on the number of potential water connections. For example, the WDs can be classified as small, medium and large based on the number of connections. This is somewhat related to the size of the population and the population density of the area.

In the discussions with private service providers, many suggest that towns with populations between 10,000 and 100,000 are considered small towns. This is consistent with the definition of small towns used in ADB small town water project in the Philippines6. For the purpose of deciding whether or not to invest in WSS service provision, private entities will

6 ADB Completion Report, Philippines: Small Towns Water Supply Sector Project, August 2006

http://www.nscb.gov.ph/activestats/psgc/articles/con_income.asp



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also look at the potential market, such as potential number of household connections, potential number of commercial or industrial connections, population density and also availability and proximity of the water source.

In summary, the definition of small town is relative and very context dependent. Private companies that are interested in providing WSS services have their own definition of small town, and more importantly are more interested in the market potential rather than the size of the population. Box 3 summarises the examples and opinions of private firm providing WSS services in the Philippines.

Box 3: Private firms’ view on small towns

SAVS Water Utility Corporation specifically looks for opportunities to provide water supply services in small towns. When asked what small towns mean, Arlene Villarroel, the CEO of SAVS, said that small towns for SAVS are loosely defined as towns with less than 100,000 population, or towns with a potential number of connections of up to 2,000.

Balibago Waterworks System Inc (BWSI) is a private entity providing water supply services in several areas. The largest area served by BWSI has around 16,000 connections (initially 7,000 connections at the start of the contract), serving around 100,000 people. The smallest area served by BWSI has around 400 connections. The President of BWSI, Cristino Panlilio, mentioned that BWSI considers itself small service providers in comparison to large concessionaires serving Metro Manila areas. When asked what small towns mean to BWSI, Cristino said that when considering areas to invest in, the size of population is only one consideration. The main important considerations are the potential number of connections and availability and proximity of water sources. In addition, growth areas are also of interest to BWSI. Areas which has commercial activities, such as existence of well-known commercial centres (SM Mall or Jolibee), are considered to be growth areas.

Dynamics of the urban hierarchy

The level of urbanisation in the Philippines has slowed down slightly after 2000. In 1950, about 25 percent lived in cities. Twenty-five years later, 42 percent of the population resided in urban areas. By the 1990s, around 48% lives in urban areas, and by 2013 almost 50% of population lives in urban areas7.

While the urbanization process in the Philippines has been quite rapid, the overall pattern of urban growth among the geographical regions has been quite uneven. By the 1970s it was clear that there is dominance in the growth of areas around Metro Manila, followed by other centres such as Cebu City and Davao City.

Figure 8 shows that the most populated areas in the Philippines are concentrated around Metro Manila, in Central Visayas Region (where Metro Cebu is located) and Davao Region (where Davao City is located).

7 World Development Indicators



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It is interesting to note that the level of urbanisation in the Philippines is driven by high rates of natural increases (higher birth rates) as well as migration from rural to urban areas. The main drivers for the rural to urban migration include:

Employment opportunities – industries and businesses develop around urban areas due to the availability of infrastructure and other supporting services. This in turn attracts rural population to move to urban areas to seek employment.

Accessibility of services – such as schools, hospitals and other infrastructure such as markets, and telecommunication technologies also contributes to the migration



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Figure 8 Population density in the Philippines (2009)

Source: http://commons.wikimedia.org/wiki/File:Philippines_Population_Density_Map.svg

In the 1970s, the Philippines Government made conscious effort to develop and encourage growth in other regions outside of the Metro Manila and surrounding areas. Early regional development policies focused on rural, agricultural and integrated area development and environmental protection. Planning and implementation were mainly directed by central government through relevant national agencies and ad hoc regional development councils, in coordination with local authorities.

http://commons.wikimedia.org/wiki/File:Philippines_Population_Density_Map.svg



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In the 80s, under the administration of Corazon Aquino, central government embarked on several programs to devolve economic development by creating regional growth centres. These were key cities outside Metropolitan Manila. Despite these efforts, uneven regional growth persisted, encouraging continued migration to areas where government-run and privately-owned special economic zones and industrial estates were rampant. The National Capital Region and nearby Southern Tagalog and Central Luzon grew fastest and received the highest numbers of internal migrants.

Another way an area becomes urbanised is when there are growing economic activity in the region. In the Philippines, this occurs mostly due to the large number of Overseas Filipino Workers (OFWs) sending remittance back into their families living in villages and rural areas. By spending the received remittance, families also help to create jobs, provide a market for goods and services, and open up other livelihood opportunities. These benefits extend, to a limited degree, to the larger community. Box 3 illustrates this point through three examples.

Additionally, the number of urban areas being declared as cities is increasing rather rapidly. For example, in 2000, 16 new cities were declared and by the first half of 2001, 15 more were declared. As of September 2013, there are 143 cities, 32 of which are highly urbanised cities (HUC) with population of more than 200,000.

Box 4 Impact of remittance to small town economies

In Mabini, this linkage between poverty and international migration is apparent because of their relatively large number of international workers and the cumulative impact of their remittances. The effect of remittances is apparent in the physical and economic transformation of the town, the proliferation of large concrete houses and of small businesses that cater primarily to families of overseas workers, and the availability of expensive consumer goods such as cars and computers.

The impact of international migration is not as evident in Guiguinto because it does not seem to be as significant. Here there are other, more decisive development factors including Guiguinto’s location and accessibility. Investments by overseas workers in Mabini have played a positive role in the development of hog production. However, other contributory factors such as the existence of nearby markets for pork, the rising demand for pork inside the town itself, and a long tradition of hog production in rural and semi-rural communities were important, too. But it is capital from overseas workers for pens, animal feed, and the like, that has made larger scale hog production possible which has, in turn, created a stable supply of meat for local and external markets. By failing to help hog producers to solve the problems connected with the industry, primarily pollution, the local government has missed an opportunity to give direction and support to the development of an industry with potential for improving employment, food security and economic diversification. Moreover, experience with support to hog production could have been used to develop local agriculture and fishing.

In Guiguinto, government and stakeholders were able to work together, and they made notable progress in instituting participatory decision making to achieve concrete gains in the town’s economy. The local government’s track record encouraged the influx of internal migrants, who have invested their time, skills and money into a town they perceive to have a bright future.



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Source: Basa, Charito and Lorna Villamil with Violeta de Guzman. “Migration, local development and governance in small towns.” Working Paper Series on Rural-Urban Interactions and Livelihood Strategies, Working Paper No. 17, International Institute for Environment and Development, September 2009.

3.2 Public service provisions

The Local Government Code (LGC) 1991 devolved basic services to LGUs, including most health services and infrastructure provision as well as the authority to create own revenue sources and to enter into international aid agreements. The LGUs are responsible for the delivery of basic services including water supply and sanitation, and LGUs has the power and authority to choose how to provide these services.

Table 8 summarises the different levels of government and their functions in relation to water supply and sanitation service provision.

Table 8 Public service provision responsibilities

Level of government

Number of units

Functions

Provinces and Independent Cities*

81

Administering tertiary health services

Involved in social welfare services and infrastructure (including water supply and sanitation as defined in Republic Act7718 and 2013 Revised NEDA Guidelines for JV) provision

Municipalities 1,494

Primary health care

Disease control

Purchase of supplies and necessary equipment

Municipal health facilities and school buildings

Barangays 42,028

Primary planning and implementing unit of government policies

Entering into agreements and doing business

Agriculture, health, social welfare, sanitation, infrastructure (including water supply and sanitation), public markets, among other things

Limited judicial jurisdiction

Limited taxation on businesses

Note: *Independent Cities are independent from their mother provinces. Cities that are politically a part of a province are called Component Cities and are treated like municipalities. In total there are 143 cities, with 32 highly urbanized cities (HUC) with population of 200,000 or more.

http://en.wikipedia.org/wiki/Provinces_of_the_Philippines

http://en.wikipedia.org/wiki/Municipalities_of_the_Philippines

http://en.wikipedia.org/wiki/Barangay

http://en.wikipedia.org/wiki/Cities_of_the_Philippines



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3.3 Water supply and sanitation service provision

As discussed in Section 2.2.2, some LGUs choose to establish Water Districts (WDs) to operate and maintain the water supply system and provide water supply services to the community in the service area. Some LGUs choose to operate and maintain the water supply system themselves. The LGU-operated system is not separate from the LGUs, with budgetary allocations directly connected to the LGU’s accounts. Other LGUs choose to partner with private companies in providing water supply and sanitation services.

In small urban and rural areas, CBOs operate some Level I and Level II water supply systems. As the area grows and becomes more urban or more densely populated, communities may request their LGU to provide Level III water supply service. There are also some CBOs that operate Level III system, as shown in Box 5 example. However, as the small urban or rural area grows, the water systems become more complex, more professional water utility management skills are required to operate and maintain the system.

The LGU may then decide how to provide the Level III service, by establishing a WD, by providing these services themselves, or by soliciting private investor/operator. Box 6 summarises the experience of the Municipality of Borbon in deciding the most suitable service provider for the community.

In some cases, when a private sector becomes aware of a community requiring Level III service, the company can approach the LGU with an unsolicited proposal. This is rather common in the Philippines, as discussed with a few small private companies.

In addition to providing water supply and sanitation services, the LGC also prescribe these roles for the LGUs:

Resource regulation

Economic regulation of their utilities

Planning and implementation of water supply and sanitation programs

Preparation of water and sanitation master plans

Monitoring of local water and sanitation coverage and update of sector profile

Provision of support to WSPs such as the RWSAs, BWSAs and cooperatives including funding from IRA

Coordinate with DENR to manage and improve the water quality within their jurisdiction

Provide waste disposal services to their constituents.8

8 Jeremy Ockelford, Principal Author and Ilana Cohen, Survey Support, Sustainability Index of WASH Activities, Philippines Country Report, January 2013



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Box 5 Molobolo Rural Welfare and Services Association – Municipality of Tuburan

The municipality of Tuburan, province of Cebu, is located at the north-western side of the island of Cebu, with a population, as of census year 2010, of 58,914.

The municipal government of Tuburan chose not to establish a Water District to provide water supply and sanitation services, and instead has two types of service providers, with a combined service coverage of 20% total municipal population:

LGU-operated waterworks and sanitation, operating a Level III system at the poblacion (municipal centre) and surrounding areas, and

Molobolo Rural Welfare and Services Association (MRWSA), a community based organisation (or user association) operating a Level III system serving approximately 200 households in three barangays.

MRWSA is the product of a provincial project funded by JICA, and is a registered water operator under the Department of Labour and Employment (DOLE). MRWSA has a Board of Directors, with members elected every two years by water users in the service area.

However, MRWSA still relies on the municipal and/or provincial government for both technical and financial support. For example, if there are major repairs, MRWSA can request funds from the municipal government, and once approved by the Sanguniang Bayan (municipal council) they will receive financial support. Similarly, MRWSA can request technical support from the Cebu provincial government, which can then send an engineer to assit MRWSA in its operation.

The MRWSA water source is estimated to be able to supply water to 9 barangays. Therefore, MRWSA can technically expand its service coverage. However, due to the lack of technical knowledge and funds to extend the system, this has not been done.

To increase service coverage in general, the municipal government of Tuburan has entered into a Memorandum of Understanding with private entity for the study on how to improve the services to a more acceptable and sustainable levels through a joint undertaking.

Source: Discussions with Municiapla Mayor, Tuburan Private Proponent and Officials of MRWSA(September 29, 2014)

Box 6 Municipality of Borbon

The municipality of Borbon, province of Cebu is located at the north-eastern side of the island of Cebu, with a population, as of census year 2010, of 31,598.

In 1989, the Borbon Water District (BWD) was established through the granting of the Conditional Certificate of Conformance (CCC) by the Local Water Utilities Administration (LWUA). The operations of the BWD cover the poblacion (municipal centre) and other adjoining seven barangays. BWD served 23% of the total number of households in the municipalities, while the rest of the population is served by the Borbon Local Waterworks, the LGU-operated system.



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The municipal government of Borbon after realizing the relatively poor performance of the Water District, through the persistent complaints of water consumers, passed a Sanguniang Bayan (Municipal Council) Resolution to dissolve the BWD and require the handover of all assets developed by the BWD during its term to the municipal Government of Borbon.

Currently, the municipal government of Borbon is operating and maintaining two separate water supply system, one is the Borbon Local Water works system, and the former BWD system, and is aiming to combine the two systems in the future.

Through the experience of inefficient operation of the BWD, the municipal government is open to the possibility to partner with private operators in the hope that private operators will be more efficient and will be able to bring in more funds to improve and expand the system.

The municipal government of Borbon has received a number of offers from several private water operators through the submission of unsolicited proposal for the improvement of the existing water supply system, expansion of service coverage and, development of new water sources, among others.

Source: Discussions with the Mayor, Municipal Administrator, and the Official In Charge of Local Waterworks of Borbon, 29th September 2014.


Experience with Domestic Private Service Providers

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4 Experience with Domestic Private Service Providers

The Philippines has a vast experience with domestic private service providers in the water supply and sanitation sector, as well as in other infrastructure sectors. The PPP sector has become a vibrant market, with many domestic private companies interested in getting involved in public service provisions. This section provides an overview of the experience with DPSP in the water supply and sanitation sector in the Philippines, the performance of some of the existing DPSPs, and summarises the key success factors as well as key challenges faced by both the public institutions and the private sector.

4.1 Overview of DPSP experience

The experience with private sector participation in infrastructure in the Philippines started off with large infrastructure projects, where the private sector design, built, operate and later will transfer the infrastructure to the government agencies, which in the beginning were mostly central government institutions. In most cases, the large infrastructure projects are solicited projects, whereby the government implementing agency invites the private sector to submit their proposal for the project. One of the first water supply PPP project is the Metro Manila water supply and sewerage concessions, as summarised in Box 7.



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Box 7 Metro Manila Water Supply and Sewerage Concessions

The Metropolitan Manila (National Capital Region) with a land area of 636 km2 is composed of 14 cities and three municipalities with a population or around 12 million people. In addition, the Metropolitan Waterworks and Sewerage System (MWSS) was also chartered to serve some municipalities and cities in the provinces of Rizal and Cavite and (recently) also the province of Bulacan.

In August 1997, the operation of MWSS assets was transferred to two private concessionaires, which was selected through the solicited PPP process. The East Zone concession was awarded to Manila Water, a consortium consisting of a domestic private company, the Ayala Group, and International Water of the UK-USA. The West Zone concession was awarded to Maynilad Water Services, a consortium consisting of a domestic private company the Benpres Corporation and Lyonnaise des Eaux of France.

Both concessionaires signed a 25 year Concession Agreements (CA) with the MWSS, which stipulate the commitments, roles and responsibilities of each party, including projected target service obligations (a set of Key Performance Indicators (KPIs) and Business Efficiency Measures (BEM)) that should be met by both concessionaires and the monitoring and regulatory obligations of the MWSS. The CA also establishes the MWSS Regulatory Office (MWSS-RO), which is tasked to perform MWSS regulatory functions, including technical, financial and customer service regulation. In 2009, the term of both CAs were extended for another 15 years, so as to allow the concessionaires to gain reasonable returns on their investments (there was an increase in CAPEX requirements compared to the original CAPEX estimate), and to allow concessionaires to increase access within their service areas.

Source: Discussion with and slides from MWSS Regulatory Office, 1 October 2015

Profiles of existing DPSPs

At the start, mostly international private companies became involved in water supply and sanitation PPP projects. With the success of the MWSS concessions and other larger PPP projects, a number of domestic private companies began showing interest in becoming involved in the water supply and sanitation sector. Interestingly, water supply provision are not the main business activities for most of the domestic companies, which are mostly civil works and construction contractors, and companies involved in residential estate development. By 2014, some of these domestic companies became established water supply service providers operating in the Philippines.

The DPSPs in the Philippines, both small and large companies, are actively looking for opportunities and actively engaging LGUs in discussions about water supply service provision. Most DPSPs prefer to service smaller towns, rather than large projects such as Metro Manila. In general, the criteria used by DPSPs to choose the area to invest in include:

Availability of sustainable water sources

Geography and geology of the area (for example, hilly and mountainous areas are difficult for Level III service)



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Concentration/density of households in the area and suitability for Level III system

Social acceptability of the potential customers, shown through willingness to connect and pay cost recovery tariffs

Political willingness of the LGU, Mayor’s willingness to discuss opportunities with the private sector and potential willingness to charge cost recovery tariffs

Political stability in the area and general peace and order condition.

Preferred method of selecting private partners

It is also interesting to note that most existing water PPP projects in small towns with LGUs are mostly the result of unsolicited proposal submitted by the private proponent (see Table 5 and Section 2.3.2 for description of solicited and unsolicited processes). Both the LGUs and private companies prefer this method of selection. For the LGUs, unsolicited proposals have the following benefits:

The submitted proposals are on non-committal basis, giving the LGUs options to either accept or reject

Costs of the preparation studies, such as feasibility study, surveys, preliminary engineering design, are covered by the private proponent

Shorter processing period, as the LGU will only need to assess the proposal and conduct the Swiss Challenge (which in some cases were not conducted, see Box 8 for Balibago’s experience), which allows the project to be implemented sooner

Technology and knowledge transfer to LGUs and/or WDs personnel during the preparation studies.

For the private companies, the benefits of the unsolicited route is mainly in the shorter processing time, and that the original proponent sets the terms for the project and does not have to meet certain qualifications or requirements as with the solicited process. It is also known that the original proponent usually has a much larger chance of winning the project, even if a Swiss Challenge process was conducted. This is in part due to the very “prohibitive” cost of tender documents for any of the challengers. Unreasonable cost of tender documents has and will stop other companies submitting a challenging bid, and therefore securing the original proponent’s proposal.

Box 8 Balibago Waterworks System Inc (BWSI) – Memorandum of Agreement

Balibago Waterworks System Inc (BWSI) is a private company providing various water supply constructions and services. BWSI was established in 1958 as a family business providing water supply services to Balibago barangay in Angeles City and Dau barangay in Mabalacat. By 1998, BWSI was purchased by a group of friends, who have since then expanded BWSI's services to other areas.



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In the original service area, the number of connection has more than doubled from around 7,000 connection at the start of the agreement to around 15,000 connection in 2014. In addition, BWSI now also has operations in other provinces, including Aurora, Batangas, Benguet, Bulacan, Iloilo, Laguna, Nueva Ecjia, Nueva Vizcaya, Pampanga, Pangasinan, and Tarlac. The smallest town served by BWSI has 400 connections.

BWSI has an unsual type of agreement called Memorandum of Agreement (MOA), which has a period of about 35 years. The MOA does not fall under either the BOT Law nor the Joint Venture Guideline by NEDA, and therefore is not subjected to these laws. A MOA can be signed by the LGU and BWSI following an unsolicited proposal from BWSI without having to go through a Swiss Challenge process. All that is needed is the agreement and approval of the Sanguiang Bayan (local council).

BWSI is interested in participating in some of the larger solicited projects, however, in most cases BWSI cannot compete with larger companies.

Source: Discussions with BWSI, 1 October, 2014 and from BWSI website: http://bwsi.com.ph/index.html

In addition to the benefits of unsolicited process discussed above, in practice, it is noticed that there is a further benefit of having unsolicited proposals from private companies, which is improving the LGUs’ knowledge and understanding of PPPs.

In many cases, LGUs and WDs (especially in small towns) do not have full understanding of PPP concept, the legal basis of PPP in the Philippines, the benefit of a PPP arrangement to the LGUs and community, and how to implement PPP projects. On the other hand, private companies that are actively looking for opportunities in the water supply sector have taken the time to understand the PPP concept, and familiarised themselves with the PPP legal framework. In presenting their proposal to the LGUs, in some cases the private companies include in the presentation sections on the concept of PPPs and how it can benefit the LGUs. Even though these presentations could be biased, it still provides the basic understanding of PPPs to LGUs.

Solicited projects on the other hand, require the LGU to have knowledge of and capacity to implement PPP projects. Given that not many LGUs have this capacity, only a handful of privately operated systems are the result of a solicited process, and some are the product of a donor funded project. Box 9 summarises the experience in Bohol, where the LGU sought private operators to operate its water system, and Box 10 illustrates the experience in Santa Cruz, where a World Bank project select and contracts a private company to design, build, and operate (through leasing) the water supply system.

Box 9 Bohol Water Utilities Inc (BWUI) – Joint Venture Company in Bohol

The water supply system operated by the Provincial Public Utilities Department in Bohol was not performing to the satisfaction of Provincial Government of Bohol, in that service area expansion was not carried out, system losses were high and in general in need of major improvements.

In 2000, the Provincial Govenrment of Bohol invited private operators to bid for a Joint Venture to Rehabilitate-Own-Operate and Maintain the existing water supply system. The Salcon Consortium won the bid, and together with the Provincial Government of Bohol

http://bwsi.com.ph/index.html



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established a Special Purpose Company called the Bohol Water Utilities Inc (BWUI). The Provincial Government of Bohol owns 30% of shares in BWUI (mostly through handover of existing assets), and Salcon Consortium owns 70% of the shares.

The Joint Venture Agreement (JVA) includes a Master Development Plan, which listed the rehabilitation and expansion targets that BWUI has to meet every 5 years up to 2020. There is no contract period in the Joint Venture Agreement.

It is interesting to note that BWUI is currently experiencing problems with system expansion due to the right of way issues with a municipal government. It seems that even though the Provincial Government of Bohol is a shareholder BWUI, it can still be in contention with a municipal government within the province.

Source: Discussions with BWUI, 30 Septmeber 2014, and slides from BWUI presentation during the meeting.

Box 10 SIG Construction – Design Build Lease Contract in Santa Cruz

Santa Cruz municipality had limited capacity to increase access to water supply services in its municipality. It has an LGU-operated system that serves only the population of the poblacion, whilst other barangays were served by water user associations or have not water supply system.

In 2006, as part of a World Bank project, a Design Build Lease (DBL) contract was bid out. Under the DBL contract the private company will be responsible to design and build the water supply system and then operate the system for 15 years. The capital investment was provided by the LGU through a loan from the Development Bank of Philippines, while the operating cost was covered through connection fees and tariffs. The assets will continuosly be owned by the LGU, and the private operator will pay the LGU lease fee during the lease period.

Through the open tender process six local firms were prequalified, and two submitted the final bids. SIG Construction won the bid and was awarded the DBL contract. SIG Construction is a Manila-based company with experience in the construction of water supply systems. Although SIG does not have experience in water supply system operation, some of its key personnel do. For example, one of the key personnel was the deputy administrator of LWUA.

SIG is interested to participate in similar projects, where the LGU provide the initial investment, and SIG will only have to provide financing for the operation of the system. Although financing products are available, and local banks do provide long term loans, SIG finds it difficult to compete with larger companies who have better access to finances when bidding for solicited projects.

SIG also looks for opportunities outside of advertised or solicited projects. In most cases, SIG prefers to work with demand driven projects, which as community driven. For example, communities who wanted to have Level III water supply systems and have requested the LGU to provide the service. In such cases, SIG will be able to submit an unsolicited proposal to the LGU, as there is definite demand for the service and the community will be willing to pay for the service.



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Source: Discussions with SIG Construction, 1 October 2014, supplemented by the World Bank WSP Philippines, Capacity Building on Public-Private Partnership in Local Water Projects – Final Report, 2014

Preferred contractual arrangement

Although the PPP framework in the Philippines takes into account various types of PPP contracts, most private companies involved in water supply service provisions prefer a Joint Venture type contracts rather than BOT types. Interestingly, the perception is that all BOT contracts must be solicited, which is seen as a restriction to small private companies. Most unsolicited proposals on the other hand, are for Joint Venture (JV) arrangements with the LGUs.

The private companies prefer this type of contract because as a partner, the LGU will have certain responsibilities, such as providing land rights and/or rights of way, assistance in acquiring permits and licences and assistance in getting any approvals from other government agencies. In addition, the JV arrangement has shorter selection process and less bureaucracy compared to other arrangements such as BOT.

Some LGUs also prefer JV arrangement, as in this type of arrangement, the private company is viewed as a partner in development, and not just a profit making organisation. The LGUs also feel more comfortable with this arrangement because as a shareholder, they will have a bit more control over the operation of the Joint Venture Company.

Nevertheless, various types of contractual arrangement exist currently in the water supply and sanitation sector, such as the concessions in Metro Manila, Memorandum of Agreement (MOA) as used by Balibago Waterworks System Inc (BWSI), Design Build Lease (DBL) contract in Santa Cruz, and various other examples summarised in Table 9.



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Table 9 Summary of selected existing water supply PPPs

Source: Water and Sanitation Program Learning Note, Beyond one-size-fits-all: Lessons learned from eight water utilities public-private partnership in the Philippines, August 2014

4.2 Performance of DPSPs

In general, the performance of the DPSPs has been good. In almost all cases, albeit with some early adjustments being required, the DPSPs have managed to increase access to water supply, reduce losses and improve efficiency. A World Bank document9 summarises the outcome of eight water supply PPPs in the Philippines as follows:

24/7 water service

Water availability of 100 lpd or more

Water pressure of 7psi or more

Drinking water quality according to Philippine National Standards

9 Water and Sanitation Program Learning Note, Beyond one-size-fits-all: Lessons learned from eight water utilities public-private partnership in the Philippines, August 2014



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Operating ratio of less than 50%

Collection efficiency of more than 90%

Non-revenue water of 20% or less

Number of staff per 1,000 connections within international standard of 3 to 5.

In the case of the DBL contract in Santa Cruz, SIG Construction has improved performance significantly, as shown in Table 10 below.

Table 10 Performance of SIG Construction under the DBL Contract for Santa Cruz

Source: Water and Sanitation Program Learning Note, Beyond one-size-fits-all: Lessons learned from eight water

utilities public-private partnership in the Philippines, August 2014

The Bohol Water Utilities Inc (BWUI) has also improved the performance of the water supply system and has met or even exceeds the targets set in their Joint Venture Agreement (JVA), for example:

Expansion of system capacity has exceeded JVA target in 2014, which was 15,286 m3. Actual system capacity in 2014 was 24,665 m3.

Daily demand for water is targeted to be 11,288 m3 in 2014, actual figure is 16,325 m3.

Daily water production target for 2014 was 14,110 m3, and actual figure is 20,725 m3.

Non-revenue water has continued to decline, from 20.2% in 2011 to 17.60 in 2014.



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However, there are some controversies with regards to BWUI’s performance. Although BWUI has met all of the JVA targets, it is reported that BWUI has not increased the number of connections in proportion to the improvements and expansion of the system.

In terms of the large private service providers, the concessionaires for the Metro Manila area shows significant improvement, such as large increases in number of connections and large reductions in NRW, and improved billing ratio, as shown in Figure 9.

Figure 9 Summary of the performance of Metro Manila concessionaires



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Source: Presentation slides from the MWSS-RO

4.3 Key achievements and success with DPSP

As shown in the previous sections, the Philippines has achieved a great deal in terms of encouraging DPSPs in the water supply sector, and the DPSPs has also improved the sector significantly. The subsections below highlight some of the key achievements and successes of DPSPs experience.

4.3.1 Public institutions’ perspective

The vibrant and active DPSP market in the water supply sector has greatly improved the sector’s performance in general, and has benefitted the government in a number of ways, such as:

Private sector investment in the water supply sector has reduced the financial burden on the government

The private sector provide financial requirements for the investments faster than government raised finances, which means projects can be implemented sooner

Improved and more efficient operation of the water supply system, which led to increase access to water supply in general

The contracting government institution may receive income from the private operator, depending on the contractual type, such as lease fees



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In most cases, the assets will be returned to the contracting government institution at the end of the contract period

Some knowledge and skill transfer occur during the contracting period, improving the skills and knowledge of the government institution.

In addition, it is reported that DPSPs have started to fill the gap and provide water supply services to poor households and rural areas, and also to areas without any water supply. An example of this is the Water PPP Program sponsored by BWSI. The Water PPP Program is a non-commercial project that aims to provide piped water supply to LGUs without any water supply systems. The program specifically targets low income municipalities, mostly second to fourth class municipalities, who cannot afford to build the much needed water supply system and may not be able to charge full cost recovery tariffs.

The Water PPP Program proposes the private firms (currently only BWSI) to partner with commercial banks that are able to and willing to provide “patient” capital, which are long term loans with slower returns. This project has already started, and BWSI is providing the first “seed” capital through a donation from Rotarac, and already started to work with several LGUs. Currently, there are about 30 small town LGUs in the pipeline, and in 10 of those the mayor has already agreed to participate. BWSI is currently checking the water source availability, which is also an important criterion in the selection of LGUs for the program.

4.3.2 Private operators’ perspective

One of the main factors that has led to the development of DPSP in the Philippines is the fact that the government has successfully provided a good enabling environment that supports the creation of the market for DPSP. The PPP framework provides the legal basis for DPSPs and some guidelines of how the private sector can be involved in public service provision, such as the WSS services.

The PPP framework also provides an incentive framework that is aimed to encourage the private sector to get involved in infrastructure and public service provision. Box 11 listed the types of financial supports offered by the Government of the Philippines to encourage PSPs in general. In addition to the financial support, the Government also made a commitment to provide a regulatory framework that is not too restrictive to PSPs.

An example of this is the tariff approval process for water supply tariffs are not restrictive and complicated. NWRB is the national government institution responsible for reviewing water tariffs set and charged by private service providers. However, most contractual arrangement includes tariff adjustment process (or rate rebasing process). NWRB monitors this tariff adjustment process, but it is mostly governed by the contractual arrangement rather than having to go through a lengthy review and approval process. During discussions with LGUs and private companies, both agree that in most cases, if the community or consumers see service improvements and are satisfied with the services they receive, small increases in tariffs are not a problem.

The creation of the PPP Centre also shows the Government’s commitment to PPPs. The PPP Centre provides information and listed opportunities available to private companies. It also provides capacity building to government institutions (national and local), and develops



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guidelines and manuals for governments and private companies, amongst others (see Section 2.3.3 for more detail about the PPP Centre and its functions and services).

It is also worth noting that one of the main success factors in the Philippines is that the type of contractual arrangement for DPSP in WSS is not too restrictive, and in most cases, the arrangements are based on mutual understanding and benefits for both the LGU and the private company. The PPP framework provides the legal basis for DPSP, but the individual arrangements are tailored to the local situation and conditions.

Furthermore, in the Philippines, project financing is not an issue for most DPSPs, as the Government and commercial banks are willing to extend financial packages in support of the implementation of WSS projects. Development agencies such as the World Bank, the Asian Development Bank, Japan International Cooperation Agency and others have made an arrangement with the Government to allow Government Banks, such as the Land Bank of the Philippines and the Development Bank of the Philippines, to channel funds from development agencies to public and/private entities for development purposes.

Box 11 Financial Support and Incentives for PPP Projects

The types of financial support and incentives provided by the Government may include:

Cost Sharing – where the contracting agency concerned accepts a maximum of 50% of capital expenses associated with the establishment of an infrastructure development facility. Such government share may be financed from direct government appropriations and/or from Official Development Assistance (ODA) of foreign government or institutions

Credit Enhancements – direct and indirect Government support to the Project Proponent and/or the contracting agency, which may include, government guarantees on the performance or the obligation of the contracting agency under its contract with the private partner, subject to existing laws on indirect guarantees. Indirect guarantees refer to an agreement whereby the Government or the contracting agency assumes full or partial responsibility for or assists in maintaining the financial standing of the private partner or project company in order to ensure that the private partner is able to fulfil its obligations under the project agreement

Direct Government Subsidy – this may be provided in several forms:

Payment for a portion of the project costs or the expenses and costs in operating or maintaining the project

Allowing the postponement of any payments due from the private partner

Contribution of any property or assets to the project



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In the case of LGUs, waiving or granting of special rates on real property taxes on the project during the term of the contractual arrangement

Waiving of charges or fees relative to business permits or licenses that are to be obtained for the construction of the project, all without receiving payment or value from the private partner and/or operator for such payment, contribution or support.

Direct Government Equity – the subscription by the Government or any of its agencies or LGUs of shares of stock or other securities convertible to shares of stock of the project company

Performance Undertaking – an undertaking of a department, bureau, office, commission, authority, agency, GOCC or LGU in assuming responsibility for the performance of the contracting agency’s obligations under the contractual arrangement including the payment of monetary obligations, in case of default.

Legal Assistance– the extension of representation by government lawyers to a private partner, but only in cases, hearings or inquiries where the contracting agency and private partner are party-defendants/respondents.

Security Assistance– the deployment of government security forces, either from the Philippine National Police (PNP) or the Armed Forces of the Philippines (AFP) in the vicinity of the project site to provide security during the implementation of the project up to completion.

Source: Build Operate Transfer (BOT) Law, Republic Act 6957, amended by Republic Act 7718.

4.4 Key constraints and challenges

Although the Philippines has had many successes in having DPSPs in the WSS sector, there are still some challenges to encourage more DPSPs, as discussed below.

4.4.1 Public institutions’ perspective

Despite the fact that unsolicited proposals can bring about benefits to both the private sector and to the LGUs, it is important that LGUs know and understand their options in terms of finding private partners to provide public infrastructure and/or services. The BOT Law and Joint Venture guidelines do provide some guidelines for LGUs on how to deal with unsolicited proposal. However, in addition to this, LGUs need to build their capacity in reviewing unsolicited proposals, so that they can make an informed decision about the project and can select projects that have long term and sustainable benefits.

Another challenge faced by LGUs and/or other public institutions is the monitoring of the private sector performance. In most cases, the contractual arrangement includes a set of key performance indicators (KPIs) that the private operator must meet. However, LGUs will need to be more proactive in enforcing these KPIs and ensure that the private operators providing the services that they are contracted to provide.



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This leads to the fact that there is no central registry or list of existing private service providers and no public report on their performances against the KPIs in the contracts. Publishing the performance of the private service providers will greatly improve accountability and will indirectly educate the public on matters related to water supply and sanitation.

4.4.2 Private operators’ perspective

The unsolicited process can also be a deterrent to private companies, specifically to companies that are interested in challenging the original proponent. It has been observed and confirmed through discussions with private companies, in most cases, the original proponent will not be challenged, or will eventually win the challenge as it is allowed to match the challenging proposal.

In addition, to challenge an unsolicited proposal the challengers will have to buy the tender documents, and in some instances, the tender documents call for a high price, un-proportional to the value of the proposal itself. The BOT Law as well as the Joint Venture Guidelines specify the requirements for security bid bond, as summarised in Table 11. These requirements are for general security bond, but also apply to unsolicited proposals, in that the original proponent and the challengers are are quired to submit bid bonds. However, in practice for unsolicited proposals, these requirements are not strictly followed.

Table 11 Bid Security requirements as per BOT Law

Project Costs

(as estimated by the Agency/LGU or proposed by Original Proponent)

Required bid security

Less than Ph P 5.0 Billion 2.0% of the project cost

Ph P 5.0 Billion to less than Ph P 10.0 Billion 1.5% of the project cost

PhP 10 Billion and More 1.0% of the project cost

Another issue that has become a deterrent to DPSPs in the WSS sector is the fact that LWUA is a financing institution that provides loans and grants to water districts. For example, legally, water districts (WDs) can contract private entities to provide bulk water supply and/or even provide water supply services, such as customer billing. However, WDs will have to request a waiver from LWUA in order to enter into a contract with private entities, especially if the private entity provides some form of investment. LWUA as a financing institution may see the private sector as competition in providing investments to WDs. It is also reported that the issuance of waivers from LWUA is time consuming and complicated, making it difficult for the WDs to secure private partners.


Conclusions and Lessons Learnt

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5 Conclusions and Lessons Learnt

This section summarises and concludes the experience from the Philippines, and draws out lessons so that other countries can learn from the successes, and also from failures, of the Philippines.

5.1 Summary conclusion

In summary, the Philippines has had a very good experience with DPSP in the WSS sector. There are many local private companies that are interested in getting involved in WSS service provision, and they are actively seeking opportunities. The local private companies are mostly construction firms or companies involved in real estate development. However, there are now also some local companies whose main business activity is water supply services.

One of the main success factors that encourage the development of DPSP is the existence of a clear and well-structured PPP framework covering all sectors that has successfully been adapted by the government at national and local levels. The PPP success stories from various sectors and some large national PPPs in the WSS sector have built private sector confidence in the government’s commitment to supporting private sector involvement in infrastructure and public service provision.

The Local Government Code allocates the responsibility of WSS service provision to LGUs, and provides the authority and power to LGUs to choose how to provide these services. Some LGUs choose to establish water districts (WDs), some prefer to provide WSS services through their own technical department, and others take the opportunity to partner with private companies.

The vibrant and competitive DPSP market that has emerged in the WSS sector leads to many unsolicited proposals being made by private companies to LGUs. Private companies prefer this method of selection as it is much shorter than the solicited process, and it more or less ensures the granting of the contract to the original proponent. The LGUs also benefits from the unsolicited proposal, as they do not have to conduct the preparatory studies required in the solicited process. However, there are downsides to unsolicited proposals, notably which the unsolicited bid may not be at a competitive price. To obviate this, the law requires that such bids should be subject to a Swiss Challenge, but in practice (in the water sector), the cost of obtaining the tender documents is often set at a high level, making it difficult for other private companies that would like to challenge the proposal to do so. It also requires the LGUs to have the capacity to properly review and assess the proposals so that they can choose the best project that will bring the most benefit to the community.

The PPP framework is flexible in the type of contractual arrangement that the private and public entities can enter into. For small town WSS service provision, the preferred type of contractual arrangement is Joint Venture, whereby the LGU and the private company establishes a Joint Venture Company to operate, maintain, in some cases expand the water supply systems and provide services to the community. JV is preferred by the private



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companies and the LGUs as it is seen by both as a partnership, where each side has to contribute to the JV Company.

5.2 Good practices in encouraging DPSP

As mentioned earlier, having a comprehensive and well-structured PPP framework was one of the main factors of success in encouraging DPSP. Having political support for the development of the PPP framework is also very important, and in the Philippines, the PPP framework was championed by the President in the 1990s, and then later on supported by the Aquino administration in the late 2000s. The PPP framework provides incentives for private companies to get involved in providing public infrastructure and/or services in terms of financial support as well as less restrictive regulatory environment.

The PPP framework also establishes the PPP Centre, a central government institution tasked with the role of facilitating the implementation of PPP program and the projects. Over the years, the PPP Centre has been providing support to government institutions implementing PPPs through its various programs, such as providing guidelines and manuals for LGUs to help implement PPP projects, providing capacity building through internship programs, and providing transaction advisory assistance through the Project Development and Monitoring Facility (PDMF). The PPP Centre also publishes lists of PPP projects being implemented as well as opportunities for future PPP projects.

In addition to the PPP Centre, which supports PPP project in general, the Department of Interior and Local Government (DILG) has also provided support to LGUs specifically in the water supply and sanitation sector. DILG has established regional hubs to provide capacity building and trainings for LGUs, which focuses on good governance of WSS service provision, which include ring-fencing WSS revenues from general LGU budget, and introducing key performance indicators (KPIs) in water supply operations. Having good governance in the operation of the WSS service provision will assist the LGUs to either establish water districts or contract private companies to operate and maintain the water supply system.

The national government has succeeded in obtaining and channelling both technical and financial support to the encouragement of DPSP in the WSS. For example, the World Bank has been working with the PPP Centre in developing business case templates that can be used by LGUs to implement WSS PPP projects. Another example is the Accredited Technical Service Providers (ATSP) program, whereby the World Bank assists NWRB to approve and accredited technical and financial experts, and creates a pool of local and international experts that can be called upon by LGUs of WDs to assist them in WSS service provisions. A study has also been done on the WSS regulatory framework, and recommendations on how to improve the framework in general has been made recently.

5.3 Areas to be improved

In considering how best to encourage DPSP in small town WSS service provision, one area that can be improved on in the Philippines is in improving the competitiveness of the



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procurement process. Although the unsolicited method of procurement is preferred by both private companies and LGUs, it can be improved to ensure fair competition.

A new PPP Act has recently been completed and is hoped to be passed in 2015. The new PPP Act will include a clearer definition of PPPs and will also deal with unsolicited proposals and how improve the unsolicited process to allow for fair competition.

Some of the capacity building programs by the PPP Centre and DILG will improve LGUs and WDs capabilities in terms of WSS systems operation and service provision, as well as in finding and selecting private partners to provide WSS services.


ANNEXES

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ANNEXES


List of Key Stakeholders Consulted

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A1 List of Key Stakeholders Consulted

Table 12 below provides summary of discussions held with stakeholders during the field visit to the Philippines

Table 12 Summary of discussions with stakeholders in the Philippines

Date of visit Institutions

Contacts Key points/topics of discussions

National level instutions

Thursday, 25 Sept

Local Water Utilities Administration (LWUA)

Nestor G. Evangelista – Acting Deputy Administrator

[email protected]

Lizabeth G. Calderon – Chief of Corporate Plan

[email protected]

LWUA provides financing options for Water Districts (WDs) and also regulates WDs

LWUA receive, review and approves tariff proposals from WDs

LWUA collects monthly performance reports from WDs, performance data are not published but can be requested from LWUA

Loans provided by LWUA do not require collateral, but LWUA can either take over the management of WDs (by taking over the Chairman's seat) or assign someone to manage a non-performing WDs (by appointing the WD's board members) who have defaulted on the loan repayments

LWUA does not regulate or monitor performance of LGU-operated systems or private operators

LWUA can attend/particpate in Joint Venture negotiations (between WDs and private sector), and will monitor the JV contract/agreement

In 2013, LWUA registered 844 WDs, but only 514 are operational, 268 are non-operational and 64 are in active

In general LWUA does not get involved, or only has a very minor role, in PSP in water service provisions

Thursday, 25 Sept

National Economic and Development Authority (NEDA)

Ruben S. Reinoso, JR – Assistant Director-General, Investment Planning

Roderick M. Planta – Monitoring and Evaluation Staff

NEDA provides overall coordination in terms of water supply and sanitation sector

NEDA currently working with donors, such as the WB and is currently developing the Unified Financing program, which is a study on types of and sources of finance available to the WSS sector, and which types are suitable for WDs or LGUs

Currently there are no studies being done on the sanitation or sewerage sub-sector

mailto:[email protected]




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Edgar A. Basilio – Infrastructure Staff

Ph: 02-6312192

There are no formal definition of small towns, there are classifications of municipalities based on municipal revenue and economic conditions: http://www.nscb.gov.ph/activestats/psgc/articles/con_income.asp

In general, towns with 10,000 – 100,000 population are considered small towns

For the purpose of WSS, small town definition can also be based on service area rather than population

NEDA reviews development plans and proposals for development projects by the LGUs

NEDA is also involved in reviewing PPP proposals:

o projects above 1 billion Ph pesos requires NEDA's approval

o NEDA sets hurdle rate of 15% for FIRR of PPP projects

NEDA agrees with the assessment that the Philippines needs a separate regulatory agency because:

o LWUA is supposed to be mainly a financing institution and not a regulator. Conflict of interest is obvious because LWUA provides loans to WDs while also approving their tariffs

o NWRB, as the currently appointed economic regulator for the WSS sector does not have enough capacity (lack of financial and operational strength). NWRB is powerful legally, in that it is mandated to regulate water utilities, but very weak operationally.

Thursday, 25 Sept

Department of Public Works and Highways (DPWH)

Asec. Maria Catalina E. Cabral – OIC Director, Planning Service

Dolores M. Hipolito – Project Manager

[email protected]

Amelia S. Dela Rosa – PPP Adviser

[email protected]

Summary of the history of WSS sector in the Philippines:

o 1980s-2000 level 1 service (point source, eg. shallow wells, private wells using hand pumps etc) are considered social services in nature, so resposibility of the national government and provided by DPWH

o 1990 Local Government Code (LGC) delegates WSS service provisions to LGUs, DPWH still provide WSS services to waterless communities (communities without a safe source of water).

DPWH also coordinates and facilitates funding for level 2 service (communal taps types) and allocates funds to LWUA to be used for implementing projects in waterless communities

http://www.nscb.gov.ph/activestats/psgc/articles/con_income.asp





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Currently DPWH focuses more on water resource management and development

DPWH has convergence programs, which coordinates relevant stakeholders involved in water in developing water infrastructures

As for PPP projects, DPWH's experiences are mostly in toll roads/highways, which are mostly in the form of BOTs (and therefore governed by the BOT Law)

Other sectors have also completed PPP projects, such as schools (under the Department of Education), but water sectors are tricky because the Local Government Code has delegated WSS responsibilities to LGUs, so PPPs has to be done at the LGU levels

Agrees that private sector operations can improve efficiency of public services

DPWH worked with PPP Center for the PPP projects, PPP Center provide assistance for all types of PPP projects and assists in building the capacity of the LGUs (see PPP Center summary)

Challenges in implementing PPP projects (in general, not just for water projects):

o LGUs are highly political and not yet used to or trusts the private sector to provide public services

o LGUs do not understand the concept/definition of PPPs and do not have the capacibility to negotiate unsolicited proposals and/or to develop and implement PPP procurement processs/transaction

o Perceived risks in PPP in water is most likely to be tariff levels and collections, but also political risks

DPWH allocates part of its budget to PPP Center as counterpart fund to donor funds

Current legal framework for water is conflicting: National regulations vs LGC

Friday, 26 Sept

Department of Interior and Local Governments (DILG)

Fe Crisilla M. Banluta – Program Manager, Office of Project Development Services, Water Supply and Sanitation Unit

[email protected]

[email protected]

Ezequie

Definition of PPP in the Philippino context:

o PPP means more BOT style, which involved private investments

o JV or Joint Ventures as a form of PPP whereby the private sector and the LGU or WD create a special purpose vehicle company, usually to design, construct, maintain and operate the infrastructure. This preferred by both parties because:

Private partners provides most of the investment, expertise and experience





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l A. Serrano – Project Development Officer

[email protected]

Marivic D. Nocum – Project Development Officer

[email protected]

LGUs or WD provides political will, ensures rights of way, land rights etc

o PSP means other types of private participation, so can include private operations only without investments

DILG is tasked with developing guidelines for JV for LGUs

Decentralisation (LGC in 1991) delegates WSS responsibilities to LGUs, and they can chose how to provide these services (using their own resources, creating WDs, or contracting/partnering with private sector)

DILG involved in the LGU Urban WSS Project, which uses funds from Government Financing Institutions (GFIs):

o Project is to provide loan to LGUs to develop WSS services, and to contract with private companies who will operate the system (similar to lease contract)

o Tariffs for this project should be full cost recovery tariffs

o DILG is part of a Contract Admistration Unit (CAU) together with the LGU and Development Bank of the Philippines (DBP)

o To select participating LGUs, DILG advertise the project, and LGUs can apply by submitting EOIs

o Criteria to select the LGUs: LGUs without WDs, and LGU has to ask for a waiver from LWUA in order to take on loan from other sources

o WB has assisted this project an prepared 100+ feasibility studies for LGUs. Criteria for the FS is to have more than 60% of WTP survey result and LGU to agree with applying full cost recovery tariffs. Out of the 100+, 45 met this criteria. Some LGUs are deemed to be not ready, because they are reluctant to hand over operation of the system to private operators.

DILG also involved in the LGU ring fencing program, which educates and requires LGUs to ring fence their revenue and expenditures for WSS services. This is in-line with GFIs and other banks requirements

DILG is also introducing 10 KPIs to LGUs to record and monitor in terms of their WSS service provision (for LGU-operated systems)





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These measures, ring fencing and KPIs are setting up and preparing the LGUs if they want to create WDs and/or to partner or contract with private sector

DILG acknowledge the notion that private sector can improve the sector performance by increasing efficiency and bringing in expertise and technology

DILG have created regional hubs to provide capacity building and training for LGUs, the regional hubs are operated/managed by members consisting of individuals from academia, NGOs, CSO, private sector and service providers (WDs)

The regional hub training or capacity building is focusing on governance of WSS, such as development of business models, promoting ring fencing of WSS revenues with the LGU, improving services etc

The regional hubs are currently funded by DILG budget, but looking at ways to make it self financing/financially independent in the future by charging small amounts for the capacity building program provided

DILG uses a toolbox provided by donors to train trainers for the regional hubs (consisting of guidelines, physical/visual tools to educate the community, even board games)

LGUs and small WDs are registering their interest in partcipating in the regional hub programs. Small WDs are somewhat loosely defined as WDs with 1000-2500 connections

DILG awards seal of good governance to LGUs who have participated and improved their governance, with which it will be easier for the LGU to be granted funding

DILG in support of having a regulatory commission for the water supply and sanitation sector

The 1998 PWSRM (Philippines Water and Sanitation Road Map) mentioned 4 pillars:

o Insitutional strengtening – responsibility of NWRB and NEDA

o Capacity building – responsibility of DILG

o Strategic alliance

o Infrastructure – responsibility of DPWH

Other ways to promote projects is the demand driven / bottom up process, whereby community and LGU decide on priority projects and then find ways to finance them



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Friday, 26 Sept

National Water Resources Board (NWRB)

ATTY. Juan Y. Corpuz, Jr. – Chief of Water Utilities Division

(Contact: Marian 9202714)

NWRB is supposed to be the main regulatory agency for water and has the economic regulatory functions

NWRB regulatory functions are mandated through the Public Service Law (Commonwealth Act 146):

o All private operators must apply for Certificate of Public Convenience (CPC), which authorises the entity to operate the system and charge rates

o However, the LGC does not require LGUs (or their WDs) to have a CPC to operate a water supply system

o CPC is valid for 5 years in accordance with a 5 year business plan (which includes tariff calculations)

Operators (including WDs, private operators and LGU-operated systems) should apply for tariff approvals from NWRB (and not LWUA, as LWUA is supposed to be more of a financier)

However, NWRB is currently not able to perform tariff reviews for all operators due to lack of financial and personnel resources, therefore, tariff review functions have been transferred to LWUA by an Executive Order issued from the Office of the President

NWRB has only 11 staff members (compare this to MWSS-RO, which has 69 staff), including 2 engineers and 3 tariff analysts

Some LGUs voluntarily submit tariff proposals to NWRBN

A WB project on strengthening regulatory framework suggest strengthening NWRB as the first step (report of this project has been received from Aileen).. Project implementation is planned for the second half of 2015.

Operators are to be classified into 3 categories for the purpose of regulation:

o Category A – large private operators, to be subjected to full regulation

o Category B – medium utilities including most of the WDs and LGU operated systems, to be subjected to full regulation

o Category C – small operators, to be subjectoed to a lighter regulation



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NWRB does have guidelines for tariff calculations, under the Implementing Rules and Regulation (IRR) of NWRB, but this is not widely used by private operators or even by LGUs or WDs

Duration of tariff review is on average 6 months, but if all documents are provided, it will be shorter, approximately 3 months

Most (large) private operators have tariff reviews and calculation rules included in the contract, for example, Laguna Water's contract provides that:

o Within the first 3-5 years of operation, tariff may not increase by more than 10%

o After 5 years of operation, tariff is to be calculated using NWRB methodology

o If before 5 years Laguna Water submits a tariff proposal, the methodology can be determined together by the parties of the contract

NWRB is a third party signatory in the Laguna Water contract and other private operators (excluding Metro Manila)

For Metro Manila, MWSS-RO is the regulator, but they are also the counter party to the private operators. MWSS-RO is supposed to submit KPIs and Business Efficiency Measures (BEM) to NWRB, but this does not happen

Therefore, NWRB is acting as contract monitoring agency (regulates using the contract terms).

However, NWRB have no input the contract negotiation between the private and public entities

NWRB has benefitted significantly from the WB's Accredited Technical Service Providers (ATSP) program, which is a pool of accredited consultants that can be called upon and deployed all over the country to assist water operators. Criteria of accreditation include:

o Have been in the water sector a minimum of 7 years and qualified as an engineer (for technical accreditation)

o For financial accreditation, have been in the water sector minimum of 5 years and have appropriate qualifications

o Attend the 5 days training and pass the final exams



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NWRB is also the regulator for water resources, and allocates water permits for ground water extraction and also for surface water. Currently there are no specific criteria to set priority to allocate permits, it is on a first come first served basis

How can the water sector attract more PPP:

o Less red tape – procurement process found too onerous by private sector. Private sector found it hard to comply with BOT Law

o Ceiling of 12% ROI for investment may not be attractive enough

Wednesday, 1 Oct

Metropolitan Waterworks and Sewerage System – Regulatory Office (MWSS-RO)

Joel C. Yu, Ph.D – Chief Regulator

[email protected]

ATTY. Vincent P.F. Yambao, JR – Deputy Administrator, Customer Service Regulation

Ph: 0917 806 5660

Engr. Gerardo A. Sullano – Deputy Administrator, Technical Regulation Area

[email protected]

The majority of management team of the MWSS-Ro attend the meeting, chaired by the Chief Regulator (Joel)

Presentations from the Technical Regulation Area, Financial (or Business Efficiency Measures or BEM), Service Connection Regulation Unit, and Legal Unit (all in one slide, will provide soft copy of the slide). Summary below are more from discussions etc, main information are in the slides.

Also provided us with a CD containing all relevant information about MWSS-RO, including concession agreements and their extensions, implementing rules and regulations of MWSS-RO, info kit and relevant legal documents (can share this using drop box if needed)

MWSS-RO created in 1997 through the concession agreements

4 areas of regulation performed by MWSS-RO:

o Technical – water quality, technical operations

o Financial – business efficiency measures (income, CAPEX, OPEX, NRW)

o Customer service – include number of connections, complaints received and addressed etc

o Administration and legal – monitor compliance with contract terms etc

As part of the technical regulation, MWSS-RO contracts expert consultants to perform asset condition assessments, which result in the Asset Condition Report every 2 years

MWSS-RO monitors service obligation compliance, such as 24/7 water availability, 16 psi pressure at customer side. If concessionare does not comply, there are provisions to mitigate the situation according to the contract, but there is also economic sanctions





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(mostly apply if not meeting water quality requirements) and as last resot, MWSS-RO can withdraw the concessionaire's performance bond

MWSS-RO was created to manage and look after MWSS assets, which are being operated and maintained by the concessionaires. Therefore, MWSS-RO reviews and approves the concessionaires business plans.

MWSS-RO as a Government Owned Corporation (GOC) is regulated by the Office of Government Corporate Counsel (OGCC)

MWSS-RO are currently developing a magna carta for customers

When asked what they think about the plan for having a centralised regulatory commission, the Chief Regulator commented:

o How do they plan to regulate the different types of utilities?

o Large private operators cannot be regulated the same was as small LGU-operated systems or WDs

Especially on how to regulate the tariffs:

o Tariffs for large private operators can be calculated on market base (price cap or UK style)

o Tariffs for WDs and LGU-operated systems might be better to be calculated using regulatory asset base method

MWSS-RO has a total of 69 staff members

The Corporate Office of MWSS has around 130 staff members

Thursday, 2 Oct

Public-Private Partnership Center (PPP Center)

Eleazar E. Ricote – Director IV, Capacity Building and Knowledge Management Services

[email protected]

PPPC currently working closely with WSP on several programs

MWSS has approached PPPC to assist with the bulk water PPP project in Bulacan

PPPC functions according to the Executive Order 8 that establishes the PPPC:

o Assist with PPP preparation

o Assist with PPP procurement

o Monitoring of government policies with regards to PPP

o Capacity building on all matters related with PPP

BOT Law requires LGU to report PPP projects to PPPC




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Agrees that currently there is a confusion on the definition of PPP, which seems to only include BOT types of arrangements, and does not include management contracts or lease contracts or even JVs

Agrees that currently, most PPPs in the water sector (as well as in other sectors ) are JVs, which is in a way a type of BOT, but not clearly defined, so sort of fall through the gap and are not governed by the BOT Law

Also, current NEDA guidelines on JVs does not include LGUs, so no guidelines for JVs with LGU

Most JVs with LGUs are unsolicited. In general, for unsolicited bids, the LGU should allow for a Swiss challenge to provide competition, but currently, there are ways to reduce competition, such as putting up the price to obtain the bid documents for the challengers, etc

PPPC website provides a guideline on how to deal with unsolicited bids, among other manuals and guidelines: http://ppp.gov.ph/

Currently, a new PPP Act is being developed and hoping to be passed in 2015, this will include all modes of PPP and clarify the definition of PPP, and will be consistent with the LGC. PPP Act will also deal with unsolicited bids and how to make it more fair

PPPC conducts capacity building workshops together with DILG and NEDA in regions for LGUs and WDs

Currently, no capacity building program or plans for private entities or commercial banks. Accepts that this may be beneficial, as the private sector needs to have the same understanding of PPP projects and banks needs to be able to provide financial products that are more suitable for PPP projects (such as long term revenue based loans etc)

Strategies to help LGUs:

o Internship programs, where the mayor can assign staff members to work in PPPC office for a period of time to learn about how to prepare FS, developed contractual documents, procurement process etc

o Work with University of the Philippines (UPI) and academia to train trainers

o Provide transaction advisory and other project development assistance under the Project Development and Monitoring Facility (PDMF)

http://ppp.gov.ph/



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The PDMF is focusing on small local PPP projects with LGUs instead of large national PPP projects

PDMF aims to lower the transaction costs for small PPP projects by providing the funds to conduct FS, having the pool of local and international accredited experts to conduct the FS

Other ways to reduce transaction costs is to bundle projects together to provide for economies of scale (such as large tourist complex, that generates electricity and have water treatment plants etc)

According to PPPC, bottlenecks in small town PPP in WSs sector are:

o LGUs limited capacity, such as lack of understanding of the options and modes of PPPs, lack of political will, inability to implement PPP procurement process, contract negotiation and monitoring

o The different institutions to deal with resulted in confusion on who to approach for what

o Lack of certainty on regulation

Thursday, 2 Oct

Philippines Association of Water Districts (PAWD)

Benigno P. Andres – General Manager

[email protected]

Teresa C. Combatir – Execuitve Director

[email protected]

PAWD is regoinal as well as provincial

LWUA is the regulatory agency for WDs

WDs rely on PAWD for information, such as new technologies, improvements ideas etc

Annual conference for all PAWD members but also open to be attended by other stakeholdes such as private sector, LGUs etc

Acknowledge the need for private sector involvement for investment and to improve efficiency or introduce new technologies

Do not see private sector as competition to WDs

WDs could be interested to partner with private sector in terms of:

o Bulk water provision

o NRW reduction

o System improvements

Most WDs use NWRB guideline for tariff calculation





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When asked what the relationship with LGUs are like, answer was: challenging

WDs feels that LGUs are influencing their operation, as LGUs appoints the WDs board of directors, and sometimes even appoints the General Manager

Interested in finding ways to de-politise the WDs and ways to shield the WDs from political interference.

We mentioned several ways we have used, such as having the qualifications of the board members clearly spelled out in the regulation/law etc

LWUA financing vs commercial banks:

o Commercial banks offer competitive (lower) rates than LWUA

o However, LWUA offers longer term loans

o Prefer to borrow from commercial banks if they offer longer term loans, as LWUA can take over management of WDs if loans are not repaid on time etc

Soon WDs will be mandated to have to provide septage services, this is something WDs may like to contract private sector

WDs would like private sector to bring in financing and then construct the systems, and maybe also provide operation, however, WDs wants to make sure that private operators also looks after public interests and not only after profit

In most cases, WDs prefer to handle the operations such as billing and collection

In general, WDs are not against private involvement

Sub-national level institutions

Monday, 29 Sept

Borbon Local Government Unit (Borbon LGU)

Mayor Bernard Sepulveda – Mayor of Borbon

[email protected]

Vice Mayor present

Ronald Bucog – Municipal Administrator

Ph: 0917 761 9892

The municipality of Borbon covers 6 coastal Barangays and 13 mountain Barangays, with population of around 34,000 (2010)

The municipal government (LGU) used to have a WDs, but this was not performing very successfully and is being dissolved and operation of the system is taken over by the LGU

The former WDs (dissolved 5 years ago) had a loan with LWUA, and currently still have a debt of 8 million Ph pesos, which the LGU will have to pay

LGU offers to pay all of the WD debt, but having problems with LWUA, who will not provide the LGU with a figure to be paid




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LGU is planning to take on loan from a Government Financing Institution (GFI) such as the Development Bank of the Philippines (DBP) to repay the loan from LWUA

In the mean time, the LGU has built a parallel but separate system and is now operating that system as well

So in total, the LGU is operating:

o The former WD system with 1000 houdehold connections

o LGU-operated system with 2000 household connections

Currently, the LGU-operated system finances are not ring-fenced, while the WD system have separate accounts

Mayor is hoping to solve the issue with the LWUA loan and then they are planning to merge/integrate the 2 systems

In general, current performance of both systems are:

o 90% collection rate

o No illegal connections

o 10% NRW

WDs and LGU system share the same water source, which is mostly ground water but are also now using some surface water

Do not currently have a water permit and do not think it was required, and NWRB is not enforcing this requirement

Staff of WDs are working and operating the WDs system

There is no reporting system, the LGU do not have to report performance of their system to anyone

LGU has municipal engineers and plumbers to operate the system who were trained by LWUA

If technical assistance is needed, the Mayor asks provincial government, who can provide/assign engineers to assist the LGU

Interested in partnering with private sector, already being approached by 2-3 private companies who are interested in working with the Mayor (most likely to be unsoliciated)



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Municipal staff can review proposal from private sector, but most likely to ask provincial government for help. Provincial government can hire consultant to assist LGU

When asked how they will select the private partner / what criteria will be used to select the private partner:

o Private partner must provide good service to customer

o Must have financial stability (higher tariff are ok as long as providing good service)

o Prefer to have small local private company rather than large ones

How tariffs are calculated (this was met with some blank looks), and it looks like tariff was set based on community's willingness to pay

Community has seen the benefit of having piped water, eg improvements in economic conditions, with more businesses (tourism) opening in the area

However, the Mayor said that provincial government understands municipal finances and also provides some funding, so they can help with tariff calculations

Currently tariffs are increasing block tariffs, as per direction from DBP

DILG are now more active in allocating funds for WSS development to LGUs, but it is bottom up budgeting, as in LGU prepare budget, submit to DILG who then allocates depending on the municipality's class

Preferred form of PPP is JV, where the private partner provide investment, and LGU provides equity (existing assets, rights or way, land rights etc)

When asked about regulation, not much understanding of what regulation entails, but do not mind if have to report performance to NWRB

The Mayor sees that having private operator is a way of improving efficiency and a way to shield himself politically from increasing water tariffs (can say that it is the private sectors' requirements etc)

LGU has never done a procurement process for PPP before (solicited or unsolicited), so a guideline would be useful

Other public services provided by LGU:

o Electricity (mostly run by cooperatives)



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o Water

o Agriculture

Roads, health and education services are mostly done by central government

Revenue of LGU are mostly from IRA (internal revenue allotment), local taxes minimal

Monday, 29 Sept

Molobolo Rural Welfare & Service Association

Edrene Servidor – Auditor

Francisca Servidor – Board of Director

Ursenila Mateo – Board of Director

Jairus Jusay – Chairman

Community based/user association operated piped-system serving 200 households, all metered connections, covering 3 Barangays

The system is designed to serve up to 9 Barangays, so the Association does have expansion plans

The Association is registered under/with the Department of Labour and Employment (DOLE), this is because when created under the JICA project, the project requires the Association to register with DOLE (instead of say DPWH or DILG, which are probably more suitable for a water supply association)

Association reports its financial and operational performance to the Mayor (of Tuburan) and to the Provincial Planning and Development Office (Provincial Government of Cebu)

Association do not report to DILG, but supposed that the Mayor reports to DILG about Associations' operation

Association has close relationship with Mayor, as Mayor allocates funds to help Association when funds are needed for major repairs or for paying bills

The PPDO also sends engineers and sometimes allocates funding to the Association

For technical assistance, the municipal engineer or plumber sometimes sent to help the Association

The Board of the Association is elected by users of the system every 2 years, however, current Board members are interim members appointed by the Mayor

Annual user general assembly has on average 30% attendance, and this is the forum to elect the Board members

Average monthy financial status:

o Revenue from tariff collection 35,000 Ph pesos

o Electricity bill 30,000 Ph pesos



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o Honorarium for Board 700 Ph pesos

o Administration costs 800 Ph pesos

o Staff costs 600 Ph pesos

Monday, 29 Sept

Tuburan Local Government Unit (Municipality of Tuburan)

Mayor Aljun M. Diamante – Mayor of Tuburan

[email protected]

Jasmine P. Sombelon – Municipal Planning and Development Coordinator (MPDC)

Ph: 0998 559 8317

Very short discussion with Mayor during lunch/in the car:

o Municipality of Tuburan has 70,000 population over 29,346 ha, which is 65% mountains and 35% low lands, with 13 coastal Barangays

o LGU system is currently making losses (tariffs do not cover costs)

o LGU system in need of rehabilitation and it is estimated that this will cost between 30-50 million Ph pesos

o Mayor wants to partner with private sector, and does not mind the private sector charging higher tariff as long as private sector deal with the public awareness campaign

o Mayor currently in discussion with a private sector entity, who is already planning to conduct the FS and so will most likely then submit an unsolicited proposal

More detailed discussion with Jasmine (MPDC):

LGU planning includes these sectors: roads, water supply and sanitation, markets and public terminals, schools.

Tuburan LGU has been approached by private sector proponents for WSS projects, one is already doing the survey. LGU is waiting for the proposal

Proposals from private proponents are reviewed by relevant departments, and include technical and financial personnels

How to select private partners / what criteria:

o Cost benefit analysis – must show benefits to community and LGU

o Prefer solicited process, but this means the LGU has to do the FS

o Due to lack of resource, it is easier for unsolicited bids, because the private sector will have to carry out and finance the FS

LGU also have legal personnel, but have not been involved in proposal reviews




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Most proposals received are for JVs

Curerntly LGU-operated system:

o Have 2000 +/- connections, 90% are residential, others are commercial/industrial

o Pipes are old (almost 100 years old) and have high leakages, around 40% NRW (technical losses)

o Theft is also a big problem, additional 20% losses due to theft

o LGU has a waterworks department, with around 20 staff dedicated for WSS

When asked what kinds of assistance will help the LGU to deal with and encourage more private participation:

o Need more human resources/man power – more engineers and planners

o Need training for existing staff

o Consultants are welcomed, but LGU do not have financial resource to pay for them

Tuesday, 30 Sept

Bohol Local Government Unit (Bohol LGU)

Provincial Planning Department Office (PPDO) staff

The Administrator (person we were supposed to meet) was not available, as there was an urgent meeting with an Australian Ambassador, so met with the GIS Unit Officer and Administration Officer, who have not been and who do not have much involvement in the WSS sector

PPDO is thinly staffed to deal with provincial matters as well as providing assistance to LGU (municipal) governments when needed

PPDO provides assistance to LGU (municipalities) with regards to WSS, can be technical or financial assistance

Not much information about the Bohol JV arrangement with Bohol Water Utilities Inc

This is a shame, as we have information and discussions with the BWUI, but not with its counterpart (the Provincial Government of Bohol)... so the story we get about the JV in Bohol is a bit one sided...

Private Sector



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Friday, 26 Sept

ALV (SAVS) Water Utilities Coporation

Arlene Villarroel – President and CEO

[email protected]

Arlene has experience with large PPP projects before starting her own companies, which focuses on smaller PPP projects in the WSS sector – Company profile summary given, have soft copy available

Her target market are small towns with up to 100,000 population or 2000 connections

As private operator, she does not have any objection to be regulated by NWRB, this is actually a good thing, as it gives more credibility to the company

Main access to finance is commercial banks, as they do actually understand water business:

o As small water operators, usually break even point is achieved only after 7 years

o Concession contracts are preferred as it gives time to generate profit, usually around 25 years

o O&M contracts are ok as long as no investment is required from private sector, and prefer a minimum of 10 years contract

An umbrella organisation for private operators does exist but is not very useful

Does not mind providing sanitation or wastewater servies as well, but this needs a lot of support from LGU or government in general

Currently the trend is to include wastewater tariffs in the water bill (as done by Metro Manila Concessionaires)

Prefer to enter into JV agreements, as this means the LGU will be a partner, and will have to contribute (mostly in terms of land rights, rights of way, getting licences/permits etc)

BOT Law includes all other arrangements (excluding JVs) with private investments

Willing to enter into JV with WDs, however, if WDs have loans with LWUA, usually they are not interested in partnering with private sector

What government support will be useful for a private sector:

o Funding for project preparation, so that the LGU can do their own FS

o Support to LGU so they can review and assess unsolicited proposals properly

o Support to LGU to develop TOR and to implement and monitor contracts




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o Improve regulatory framework, an independent regulator will provide better transparency

o Mapping of WDs, LGU-operated systems and waterless LGUs will help private sector find where to invest

Tuesday, 30 Sept

Bohol Water Utilities Inc

Jacinto D. Villaflor, JR – Engineering Head

[email protected]

Christine E. Ranay – Financial Admministration Manager

[email protected]

A presentation was given by BWUI, slides are available in soft copy, also given Bohol Utility Profile, which includes 2013 performance indicators

Bohol Water Utilities Inc (BWUI) won the public tender run by the Provincial Government of Bohol (PGB) and entered into the JV Agreement to Rehabilitate-Own-Operate-Maintain the existing provincial waterworks system

BWUI is the SPV company, with PGB holding 30% shares, and SALCON 70% shares

The JV Agreement does not have any expiry date

The JV has a JV Agreement Master Development Plan, which lists the targets for the JV

Currently (more detailed data in BWUI profile):

o Have 12,609 connections, population served 81,014

o Staff 67, ratio of 5.4 staff/1000 connection

o Serving 10 Barangays out of 15 in Tagbilaran (capital of Bohol Province)

o On average make 250 new connections per year

Current tariffs are as of 2006, when tariff increase was approved by NWRB, and this was only implemented in 2011 due to City Government's opposing the tariff increase

Tariff calculations are based on NWRB guidelines

BWUI pays annual NWRB supervision fee, which is 0.05% of asset value

BWUI submits annual KPIs and KFIs to NWRB, but these are not published

BWUI has 4 water permits from NWRB for the water source

JV Agreement requirements are monitored by the Provincial Government through a steering committee created for the JV

BWUI submitted project status reports as per the JVA and financial statements to PGB, but this is not done anymore, because BWUI has met all the targets in the JVA





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Currently having propblems with rights of way with LGU (municipality), PGB tried to help but to no avail.

Wednesday, 1 Oct

Balibago Waterworks System Inc (BWSI)

Cristino Panlilio – President

Maria Socorro 'Deanne' H. Hernandez – Business Development Consultant

[email protected]

Balibago operates in several areas and have several contracts already and looking to enter into more contracts

Criteria used to select LGUs or areas to serve:

o Availability of water source

o Number of households and potential customers

o Location, such as proximity to growth centers (growth centers are loosely defined as areas with commercial activities, such as existence of SM Mall)

Balibago sometimes do cluster small towns that share the same system

The type of contract used by Balibago is somewhat unique, it is a Memorandum of Agreement (MOA), and it is not a JV or BOT, so does not fall under either BOT Law or the NEDA JV guidelines. It is similar to a BOT, in that Balibago will build, operate and transfer the system. The MOA is for 35 years

In the MOAs, Balibago guarantees service parameters, such as:

o 24/7 water availability

o 16 psi at customer point

o Potable (chlorinated) water quality

Balibago MOAs are unsolicited and did not go through a Swiss challenge process (might be due to the fact that it did not fall under either BOT Law or JV guidelines), all they need to enter into the MOA is approval from the Sanguian Bayan (SB or the LGU council/local parliament)

Largest town served by Balibago has 15-16,000 connections (only 7000 at the start of the MOA in 1997), serving around 100,000 people

Smallest town has 400 connections

Balibago has a CPC from NWRB, which can be renewed every 5 years by submitting performance report to NWRB




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Balibago use NWRB tariff guideline and methodology (return on rate base) to calculate tariffs, and submits annual operations audits, and pays the NWRB supervision fees

Tariff negotiations or proposal negotiations are not attended by NWRB, only between Balibago and the Mayor and SB

General tariff levels used by Balibago:

o Small towns 15-16 Ph pesos/m3

o Large towns/big cities 20 Ph pesos/m3

o In addition also charge connection fee (based on cost of connection) and deposit (equals to 2 months of average consumption, which equates to about 250 Ph pesos)

Balibago intersted in bidding for solicited bids, but usually cannot win due to competition from larger companies

Do not have much dealings with WDs, WDs perceived as opposing private operations, however, have some bulk water supply contracts to WDs.

Quoted the Adala case for challanging a large operator to allow smaller one to enter into the service area (which results in the non-exclusivity measures for water service areas)

Balibago is sponsoring a Water PPP program, which is a non-commercial project to provide water supply systems (piped) to waterless LGUs (mostly 2-4 class municipality)

o These LGUs cannot charge commercial tariffs, therefore need some subsidy from LGUs

o Balibago can partner with commercial banks that can provide 'patient' capital, meaning slow return and long term loans

o Currently has about 30 small towns in the pipeline, and 10 of those the Mayor has already agreed to participate in, Balibago currently checking water source availability

o Out of all waterless LGU, selection on first come first served and depends on water source availability and Mayor and SB's willingness to participate

Wednesday, 1 Oct

TGV Builders Inc or

Simplicio C. Belisario, JR – President

SIG Construction won the bid for a DBL contract in Santa Cruz for 15 years (WB Project, LGU take on loan to finance project, private partner design, build and lease the system).



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SIG Construction Inc [email protected] Under DBL contract LGU fund the construction through taking on the loan, and SIG pay lease fee

Currently has 3000 household connections, if LGU wants to expand, they have to provide the funds

If LGU wants SIG to invest, they will have to increase the tariffs

If LGU wants to increase tariffs, only needs to discuss and get approval of Mayor and SB, not go to NWRB

DBL contract includes performance bond to ensure performance against targets

How to find other opportunities? Usually through connections with Mayor or LGUs, use networking events and previous connections. The Majoral problem is that the Mayor's term is only 3 years, which can change the opportunity for the private partner

Of the opinion that unsolicited bids are not allowed under BOT Law

Prefer to use the demand driven concept, which is:

o Community request WSS system to LGU

o LGU obligated to provide somehow

o LGU can choose to contract private companies to provide services, and use solicited process

Under TGV company, has several bulk water contracts

Interested in wastewater and seepage(?) business, where the WDs or LGUs collect and deliver seepage (?) to TGV's treatment plants

Under clean air Act, by 2012 WDs have to provide seepage services, so there is good opportunity for TGV

As small private companies, the main problem is that they cannot compete with larger companies who can easily access finance from commercial banks

Small companies need banks or financiers to understand the nature of the business (ie long term investments, slow return, revenue base etc)

Have done Design Build Finance (DBF) projects with WDs, where TGV design and build the system, and finance it, and then WDs operate it and pay TGV lease fee




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TGV able to provide financing by using suppliers' credit rather than borrow from commercial banks

Understand that PPP definition means BOT, and BOT processes are too onerous (transaction cost too high for small companies)

Interested in other DBL type schemes, where LGU takes on the financing of the project, and private only starts investing after being selected (example is for DBL project, SIG only had to bid on the tariff, only after winning do they have to provide engineering design, the FS is provided by the LGU). SIG do check for water source and check some of the FS design, and then able to work out the appropriate tariff to bid

In general, speed in the government process is a very important consideration for private sector to enter the scene

Oher institutions/ discussions

Wrap up meeting with WB

Aileen Castro – WSP Water and Sanitation Specialist

Alma Porciuncula – Senior PPP and Policy Specialist

ECA team update the WB on progress and results of visit so far, main summary provided include:

o In the Philippines, most common and preferred type of PPP is JVs, and most of these are unsolicited

o There is a need to institutionalise or formalise the processes to deal with unsolicited proposals

o Discussions with the private sector shows that there is a vibrant and rather assertive private sector interested in small town water supply projects

o These small local private sector are well educated and have good understanding of the water business (long term investment, very political, etc), and one of their main concerns is that they cannot compete with large companies, who are now also starting to get interested in small town water projects

o There is definitely a need to educate the LGUs on PPPs so that they can enter into a fair and beneficial contracts (whether through solicited or unsolicited channels)

WB is developing Business Case template for WSS PPP for LGUs

The Accredited Technical Service Providers (ATSP) now has 77 experts in the pool, including engineers and financial advisers



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WS is working on the Unified Financing Framework project, and will share report once final report is accepted

The regulatory framework project recommends to strengthen NWRB to restructure and increase resources to be able to perform regulatory functions

When asked what is needed to strengthen public institutions to support and encourage PPPs:

o Find strong champion (Philippines PPP policy and framework were championed by the president, hence it made huge progress during the last few years)

o Analyse what the country needs to have PPPs (gap analysis)

o Work on eliminating or decreasing the gaps

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